Semiannual Report to 

CONGRESS

OFFICE OF INSPECTOR GENERAL

April 1, 2012, Through September 30, 2012

2012

Largest Mortgage Lender Settlement 

in U.S. History

Billion

$26

U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Historic Settlement
ii

Profile of Performance

Audit profile of performance for the period April 1, 2012, to September 30, 2012

Results This reporting period FY 2012

Recommendations that funds be put to better use $827,131,502 $3,291,053,596

Recommended questioned costs $1,201,914,633 $1,334,803,897

Collections from audits $33,615,240 $173,163,871

Administrative sanctions 3 6

Subpoenas 117 163

Investigation profile of performance for the period April 1, 2012, to September 30, 2012

Results This reporting period FY 2012

Recoveries and receivables $538,068,750 $4,079,787,377

Arrests1 280 614

Indictments and informations 354 708

Convictions, pleas, and pretrial diversions 285 663

Civil actions2 32 94

Total administrative sanctions 181 489

 Suspensions 77 148

 Debarments 79 178

 Limited denial of participation 0 0

 Removal from program participation 18 63

Systemic implication reports 7 7

Personnel actions3 20 62

Search warrants 47 79

Subpoenas 584 1,223

1 2 3 \

Hotline profile of performance for the period April 1, 2012, to September 30, 2012

Results This reporting period FY 2012

Funds put to better use $623,886 $1,480,230

Recoveries and receivables $172,288 $315,693

Hotline complaints processed related to OIG 

mission 387 637

1

Included in the arrests is our focus on the nationwide Fugitive Felon Initiative. During fiscal year (FY) 2012, we arrested 30 

fugitive felons with 2 occurring this reporting period.

2

Civil actions no longer include contact letters.

3

Personnel actions include reprimands, suspensions, demotions, or termination of the employees of Federal, State, or local 

governments or of Federal contractors and grantees as the result of OIG activities.
A Message From Inspector 

General David A. Montoya

I am honored to submit my second Semiannual Report to Congress, 

which highlights key results for the period ending September 30, 2012. 

This submission closes out fiscal year 2012, arguably one of the most 

successful years this Office of Inspector General (OIG) has ever had. 

With much admiration, I want to highlight the exceptional performance 

reflected in this report and the tireless dedication of our staff of auditors, 

investigators, computer specialists, evaluators, attorneys, and other 

support staff.

Our office is charged with eliminating and preventing fraud, waste, and 

abuse in U.S. Department of Housing and Urban Development (HUD) 

programs and operations, and the audits and investigations conducted 

by our office have had a significant impact on safeguarding HUD and 

the taxpayer. During this 6-month cycle, we issued 86 audits, which resulted in more than $827 million in funds 

put to better use, nearly $1.2 billion in questioned costs, and more than $33 million in collections from audits. 

Our investigations led to $538 million in recoveries, 354 indictments or informations, and 285 convictions of 

criminals impacting HUD programs.

One of the key audits during the period was our review of the Federal Housing Administration’s (FHA) 

Preforeclosure Sales Program. Of 80 claims statistically sampled, 61 did not meet the criteria for participation in 

the program. As a result, we estimated that HUD paid $1.6 billion in claims for 11,693 preforeclosure sales. We 

recommended that HUD strengthen program controls and obtain reimbursement from those lenders that were 

not previously pardoned from repayment in the national mortgage settlement.

An important investigation for your attention involves our emphasis on fraud rescue schemes. Three former 

owners of several loan modification companies pled guilty for their part in a scheme to defraud distressed 

homeowners seeking to modify FHA and conventional mortgages. More than 200 victims of this scheme have 

been identified to date, along with an estimated $1.6 million stolen by the defendants. 

Our strategic plan going forward will center on four new initiatives. While we remain committed to our 

statutory mission of detecting fraud, waste, and abuse, we will concentrate on identifying and mitigating 

problems before they become systemic, rather than limiting ourselves solely to reacting to allegations. Along 

with our traditional audit and investigative work, we will implement four initiatives over the next 5 years to 

tackle the conditions we currently face. These are

•	 An emphasis on civil fraud cases,

•	 Enhanced evaluations and inspections,

•	 Increased use of data analytics, and

•	 Renewed fraud prevention efforts.

The men and women who comprise HUD OIG are an outstanding group of professionals, who are strong in 

their commitment to making a difference in HUD programs and operations and are pledged to ensuring that 

government programs are run with honesty and competence.

David A. Montoya

Inspector General

iii
iv

Acronyms List

ARRA American Recovery and Reinvestment Act of 2009

CDBG Community Development Block Grant

CDBG-R Community Development Block Grant-Recovery

CFR Code of Federal Regulations

CPD Office of Community Planning and Development

DOJ U.S. Department of Justice

FBI Federal Bureau of Investigation

FFMIA Federal Financial Management Improvement Act of 1996

FHA Federal Housing Administration

FIFO first-in, first-out

FY fiscal year

GAO U.S. Government Accountability Office

HECM home equity conversion mortgage

HIAMS HUD Integrated Acquistion Management System

HOME HOME Investment Partnerships Program

HPS HUD Procurement System

HUD U.S. Department of Housing and Urban Development

IDIS Integrated Disbursement and Information System

IRS Internal Revenue Service

LMDC Lower Manhattan Development Corporation

M&M management and marketing

NOAH New Orleans Affordable Homeownership Program

NSP Neighborhood Stabilization Program

OCFO Office of the Chief Financial Officer

OIG Office of Inspector General

OMB Office of Management and Budget

PHA public housing agency

PIH Office of Public and Indian Housing

REO real estate-owned

SEMAP Section Eight Management Assessment Program

SPS Small Purchase System

U.S.C. United States Code

USDA U.S. Department of Agriculture
v

Reporting Requirements

The specific reporting requirements as prescribed by the Inspector General Act of 

1978, as amended by the Inspector General Act of 1988, are listed below:

Source-Requirement Pages

Section 4(a)(2)-review of existing and proposed legislation and regulations. 32

Section 5(a)(1)-description of significant problems, abuses, and deficiencies relating to 

the administration of programs and operations of the Department.

1-31

Section 5(a)(2)-description of recommendations for corrective action with respect to 

significant problems, abuses, and deficiencies.

35

Section 5(a)(3)-identification of each significant recommendation described in 

previous Semiannual Report on which corrective action has not been completed.

Appendix 3, 

table B

Section 5(a)(4)-summary of matters referred to prosecutive authorities and the 

prosecutions and convictions that have resulted.

1-31

Section 5(a)(5)-summary of reports made on instances where information or assistance 

was unreasonably refused or not provided, as required by Section 6(b)(2) of the Act.

No instances

Section 5(a)(6)-listing of each audit report completed during the reporting period, and 

for each report, where applicable, the total dollar value of questioned and unsupported 

costs and the dollar value of recommendations that funds be put to better use.

Appendix 2

Section 5(a)(7)-summary of each particularly significant report. 1-31

Section 5(a)(8)-statistical tables showing the total number of audit reports and the 

total dollar value of questioned and unsupported costs.

Appendix 3, 

table C

Section 5(a)(9)-statistical tables showing the total number of audit reports and the 

dollar value of recommendations that funds be put to better use by management.

Appendix 3, 

table D

Section 5(a)(10)-summary of each audit report issued before the commencement of 

the reporting period for which no management decision had been made by the end of 

the period.

Appendix 3, 

table A

Section 5(a)(11)-a description and explanation of the reasons for any significant 

revised management decisions made during the reporting period.

36

Section 5(a)(12)-information concerning any significant management decision with 

which the Inspector General is in disagreement.

39

Section 5(a)(13)-the information described under section 05(b) of the Federal 

Financial Management Improvement Act of 1996.

40
vi

Contents

Chapter 1 - Single-Family Programs

Audit..........................................................................................................................................1

Investigation ..............................................................................................................................4

Chapter 2 - Public and Indian Housing Programs

Audit..........................................................................................................................................8

Investigation ............................................................................................................................11

Chapter 3 - Multifamily Housing Programs

Audit........................................................................................................................................13

Investigation ............................................................................................................................13

Chapter 4 - Community Planning and Development Programs

Audit........................................................................................................................................15

Investigation............................................................................................................................18

Chapter 5 - American Recovery and Reinvestment Act of 2009

Audit........................................................................................................................................20

Investigation............................................................................................................................24

Chapter 6 - Disaster Relief Programs

Audit........................................................................................................................................25

Investigation ............................................................................................................................26

Chapter 7 - Other Significant Audits and Investigations and the OIG Hotline

Audit........................................................................................................................................27

Investigation ............................................................................................................................30

OIG Hotline ............................................................................................................................30

Chapter 8 - Legislation, Regulation, and Other Directives

Notices and Policy Issuances ..................................................................................................32
vii

Chapter 9 - Audit Resolution

Audit Reports Issued Before the Start of the Period With 

No Management Decision as of September 30, 2012 ...........................................................35

Significantly Revised Management Decisions .......................................................................36

Significant Management Decision With Which OIG Disagrees .........................................39

Federal Financial Management Improvement Act of 1996 ..................................................40

Appendix 1 - Peer Review Reporting .........................................................................................42

Appendix 2 - Audit Reports Issued............................................................................................43

Appendix 3 - Tables ....................................................................................................................53

Appendix 4 - 5-Year Recap: HUD OIG’s Impact on the FHA Insurance Program

 2008-2012 ............................................................................................................79

OIG Telephone Directory ..........................................................................................................81
1 Chapter 1 - Single-Family Programs 

Chapter 1

Single-Family Programs 

Strategic Initiative 1: 

Contribute to the reduction of fraud 

in single-family insurance programs

Audit

The Federal Housing Administration (FHA) 

single-family programs provide mortgage 

insurance to mortgage lenders that, in turn, 

provide financing to enable individuals and 

families to purchase, rehabilitate, or construct 

homes. Some of the highlights from this 

semiannual period are noted below:

Key program results

Audit

17 audits

Questioned costs $322.2 million

Funds put to better use $792.7 million

Review of the FHA 

Preforeclosure Sale Program

The U.S. Department of Housing and Urban 

Development, Office of Inspector General 

(HUD OIG), reviewed the FHA Preforeclosure 

Sale Program to determine whether FHA paid 

claims for only preforeclosure sales that met the 

criteria for participation in the program.

Of 80 claims reviewed, 61 did not meet the 

criteria for participation in the Preforeclosure 

Sale Program. Of these ineligible claims, 55 

were submitted by the 5 lenders involved in the 

national mortgage settlement. In exchange for 

roughly $25 billion, the settlement pardoned 

these lenders’ misconduct in loan servicing, 

including their processing of preforeclosure 

sale claims. The remaining six improper claims 

totaling nearly $361,000 were submitted by 

lenders that were not involved in the national 

mortgage settlement. Based on the sample 

results, OIG statistically projected that HUD 

paid an estimated $1.06 billion in claims 

for 11,693 preforeclosure sales during the 

audit period that did not meet the criteria 

for participation in the program. While this 

amount of claims did not comply with HUD 

requirements, it does not represent a direct loss 

to the FHA insurance fund. The ultimate final 

cost to the FHA insurance fund would likely be 

less than this amount because some of these 

loans could have been processed differently 

and would have instead gone to foreclosure 

and become conveyance claims. However, it is 

also reasonable to assume that at least some of 

these loans would have resulted in no claim or 

reduced claims due to alternative loss mitigation 

procedures.

OIG recommended that HUD strengthen 

controls over the Preforeclosure Sale Program 

and require lenders to reimburse the FHA 

insurance fund for improper claims. (Audit 

Report: 2012-KC-0004)

Review of Mortgage Loan Servicing 

and Foreclosure Abuses – Rollup

HUD OIG reviewed the foreclosure practices 

for five of the largest FHA mortgage servicers 

(Ally Financial, Incorporated; Bank of America; 

CitiMortgage; JPMorgan Chase; and Wells 

Fargo Bank) due to reported allegations made 

in the fall of 2010 that national mortgage 

servicing lenders were engaged in widespread 

questionable foreclosure practices involving the 

use of foreclosure “mills” and a practice known as 

“robosigning.” On March 12, 2012, OIG issued 

separate memorandums to HUD, which detailed 

its results for each of the five reviews (2012-PH1801, 2012-FW-1802, 2012-KC-1801, 2012-CH1801, and 2012-AT-1801).
Chapter 1 - Single-Family Programs 2

In February 2012, the U.S. Department of Justice 

(DOJ) and State attorneys general announced 

their proposed joint settlement agreement 

totaling $25 billion with the five mortgage 

servicers for their reported violations of State and 

Federal foreclosure requirements. On March 12, 

2012, DOJ and the State attorneys general filed 

consent judgments with the court. The consent 

judgments provided details of the servicers’ 

financial obligations under the agreement, such 

as payments to borrowers whose properties 

were foreclosed upon and the Federal and State 

governments. They also included more than $20 

billion in consumer relief activities. The Federal 

settlement payment amount of more than $684 

million would be used for (1) losses incurred to 

FHA’s capital reserve account and the Veterans 

Housing Benefit Program Fund or as otherwise 

directed by the U.S. Department of Veterans 

Affairs and the U.S. Department of Agriculture’s 

Rural Housing Service and (2) the resolution of 

qui tam actions. Of the $684 million, as of July 

15, 2012, more than $315.2 million had been 

deposited into FHA’s account. 

OIG recommended that HUD (1) determine 

the changes needed to FHA’s servicing and 

foreclosure policies based on the consent 

judgments and ensure that the servicers 

incorporate the necessary changes into their 

procedures for servicing FHA-insured loans; (2) 

ensure that the servicers establish or implement 

adequate procedures and controls to address 

the control deficiencies cited in the five issued 

memorandums, including but not limited to the 

withholding of claims for insurance benefits and 

the retention of appropriate legal documentation 

supporting the appropriateness of the foreclosure 

for all FHA-insured properties for the life of the 

loans; and (3) pursue appropriate administrative 

sanctions against attorneys who may have 

violated professional obligations related to the 

foreclosure of FHA-insured properties. (Audit 

Memorandum: 2012-CH-1803)

Mortgagees, Loan Correspondents, 

and Direct Endorsement Lenders

HUD OIG reviewed FHA loans underwritten 

by Shea Mortgage, Inc., in Aliso Viejo, CA, to 

determine the extent to which Shea Mortgage 

failed to prevent the recording of prohibited 

restrictive covenants or potential liens in 

connection with FHA-insured loans closed 

between January 1, 2008, and December 31, 

2011.

Shea Mortgage did not follow HUD 

requirements when it underwrote loans that 

had executed and recorded agreements between 

Shea Homes and the FHA borrower, containing 

prohibited restrictive covenants in connection 

with FHA-insured properties. As a result, 600 

FHA-insured loans (29 claim loans and 571 

active loans) had a corresponding prohibited 

restrictive covenant recorded with the applicable 

county recording office, and Shea Mortgage 

placed the FHA insurance fund at unnecessary 

risk for potential losses.

OIG recommended that HUD require Shea 

Mortgage to (1) reimburse the FHA insurance 

fund for nearly $1.5 million in actual losses 

resulting from the amount of claims and 

associated expenses paid on 11 loans that 

contained prohibited restrictive covenants; (2) 

support the eligibility of nearly $2.6 million 

in claims paid or execute an indemnification 

agreement requiring any unsupported amounts 

to be repaid for claims paid on 19 loans, for 

which HUD has paid claims but not sold the 

properties; (3) remove prohibited restrictive 

language or execute an indemnification 

agreement that prohibits it from submitting 

claims on 27 active loans with prohibited 

restrictive covenants in the amount of more 

than $7.7 million, thereby putting more than 

$5 million to better use; (4) nullify all active 

restrictive covenants on FHA loans or execute 

an indemnification agreement that prohibits it 

from submitting claims on those loans; and (5) 

follow 24 CFR (Code of Federal Regulations) 

203.41 requirements and ensure that policies 
3 Chapter 1 - Single-Family Programs 

and procedures reflect FHA requirements.

In addition, OIG recommended that HUD 

determine legal sufficiency and if legally 

sufficient, pursue civil remedies, civil money 

penalties, or other administrative action against 

Shea Mortgage, its principals, or both for 

incorrectly certifying to the integrity of the data 

or that due diligence was exercised during the 

origination of FHA-insured mortgages. (Audit 

Memorandum: 2012-LA-1801)

***

HUD OIG audited Allen Mortgage, Limited 

Liability Company, an FHA nonsupervised 

lender in Centennial Park, AZ, to determine 

whether (1) Allen Mortgage complied with 

HUD’s regulations, procedures, and instructions 

in underwriting FHA-insured loans and (2) 

its quality control plan, as implemented, met 

HUD’s requirements.

Allen Mortgage did not comply with HUD’s 

regulations, procedures, and instructions in 

underwriting FHA-insured loans. Specifically, 

of the 73 streamline refinanced loans reviewed, 

23 contained material underwriting deficiencies. 

Allen Mortgage also (1) allowed borrowers to 

skip mortgage payments due on their previous 

loans and close their loans without paying 

settlement costs; (2) did not always ensure 

that FHA case binders sent to HUD contained 

complete and accurate information; (3) provided 

mortgage services to borrowers, such as paying 

their mortgage payments, to prevent them from 

defaulting on their mortgages within the first six 

payments; (4) sought reimbursement from the 

borrowers for the advanced payment; and (5) did 

not fully implement its quality control program 

in accordance with HUD’s requirements. As 

a result, the risk to FHA’s insurance fund was 

increased by more than $2 million, and HUD 

lacked assurance that Allen Mortgage acted in 

the best interests of FHA borrowers. 

OIG recommended that HUD require Allen 

Mortgage to (1) reimburse the FHA insurance 

fund more than $811,000 for losses incurred on 

8 loans and for any future losses for more than 

$199,000 in claims paid on 1 loan; (2) indemnify 

HUD for 11 loans with material underwriting 

deficiencies; and (3) implement adequate 

policies, procedures, and controls to address the 

issues cited. (Audit Report: 2012-CH-1015)

***

HUD OIG audited loans originated by Bankers 

Mortgage Group in Woodland Hills, CA, to 

determine whether the lender originated FHAinsured loans using sufficient, reliable, and valid 

documentation.

Bankers Mortgage Group did not originate 

loans using sufficient, reliable, and valid 

documentation in compliance with HUD 

requirements. Specifically, 9 of 10 loans reviewed 

contained significant deficiencies that affected 

the integrity of data entered into the automated 

underwriting system. These loans were 

originated with false or questionable income 

and asset documentation, including income 

that could not be verified, gifts to borrowers 

that lacked evidence of source of funds, and 

improperly sourced earnest money deposits. 

OIG recommended that Bankers Mortgage 

Group or another responsible lender (1) 

indemnify HUD against potential losses of 

more than $1.5 million for eight loans and 

(2) reimburse the FHA insurance fund nearly 

$59,000 for the actual loss on one loan. OIG 

recommended that HUD pursue remedies under 

the Program Fraud Civil Remedies Act (31 

U.S.C (United States Code) 3801-3812), civil 

money penalties (24 CFR 30.35), or both against 

Bankers Mortgage Group, its principals, or both 

for certifying to the truthfulness and correctness 

of false or questionable loan information. OIG 

also recommended that HUD review all of the 

remaining loans that were originated by Bankers 

Mortgage Group and take action as appropriate. 

(Audit Report: 2012-LA-1011)
Chapter 1 - Single-Family Programs 4

Review of the Real EstateOwned Management and 

Marketing III Program

HUD OIG audited HUD’s oversight of its 

real estate-owned (REO) Management and

Marketing (M&M) III program to determine 

whether HUD’s policies and procedures provided 

for efficient and effective oversight of asset 

managers and field service managers under the 

program.

HUD did not have adequate procedures in place 

to ensure consistent and adequate enforcement 

of asset and field service manager contracts.

Specifically, (1) list prices were not always 

reduced according to the marketing plans, (2) 

bids were approved that did not meet HUD’s 

flexible threshold, (3) bids were rejected that 

met the marketing plan thresholds, (4) bids 

that met applicable thresholds were not always 

counteroffered or forwarded to the government 

technical representative for approval, and (5) 

properties were not assigned to field service 

managers based on performance even when 

HUD identified performance issues. In addition, 

HUD did not always pay field service managers 

in accordance with their contracts, resulting 

in an estimated net underpayment of nearly 

$554,000 to field service managers.

OIG recommended that HUD (1) develop and 

implement policies and procedures for oversight 

of the M&M III program, to ensure that field 

service managers are paid only for routine 

inspections that are conducted, and procedures 

for the its tracking system, to ensure that bids 

meeting applicable thresholds based on the listed 

and appraised values are accepted; (2) review 

the tracking system and its related controls; (3) 

finalize and implement the field service manager 

scorecard; (4) reimburse or request repayment for 

the field service managers that were underpaid 

or overpaid; and (5) ensure that HUD receives 

repayment for routine inspections that were not 

conducted by field service managers. (Audit 

Report: 2012-LA-0003)

HUD OIG audited HUD’s REO M&M III

program at Innotion Enterprises, Inc., in Las 

Vegas, NV, to determine whether Innotion 

performed property preservation and protection 

services according to contract requirements.

Innotion did not always perform property 

protection and preservation services according 

to contract requirements. Specifically, 38 of 96 

properties reviewed materially failed because 

homes were not secured or properly maintained.

As a result, HUD did not have assurance that 

Innotion maintained REO homes at the high

standard of care required in the performance 

work statement. HUD paid Innotion more than 

$11,000 for monthly services for 38 homes that 

did not reflect a high standard of care.

OIG recommended that HUD require Innotion 

to develop and implement adequate procedures 

and controls, including improving its quality 

control inspections, to ensure that all units meet 

HUD’s REO contract requirements to prevent

more than $1 million in program funds from 

being spent over the next year on units that are 

in material noncompliance with HUD standards. 

(Audit Report: 2012-LA-1010)

Investigation

The HUD OIG Office of Investigation conducts 

criminal, civil, and administrative investigations 

involving allegations of fraud against HUD’s 

programs, including theft, embezzlement, and 

false statements by HUD project management 

and housing development employees, 

contractors, and others and false statements and 

theft by housing program participants, including 

tenants. The investigations are generated in 

many ways to include leads provided by HUD 

program staff and may be conducted jointly 

with our Office of Audit and Federal, State, 

and local law enforcement agencies. The 

Office of Investigation works closely with law 

enforcement partners on task forces as well. 

This interagency cooperation allows for a free 

exchange of information among Federal agencies 
5 Chapter 1 - Single-Family Programs 

– particularly with respect to government 

intellectual property. Consequently, HUD, 

FHA, and the Government National Mortgage 

Association are now moving to protect their 

names, logos, and marks from those defrauding 

consumers under the guise of government 

affiliation or endorsement.

Program results Investigations

Administrative-civil actions 98

Convictions-pleaspretrial diversions 78

Financial recoveries $528,541,175

Three Plead Guilty in 

Scheme Using HUD Logo

Three former owners of several loan modification 

companies pled guilty to mail fraud and aiding 

and abetting for their part in a scheme to 

defraud distressed homeowners seeking to 

modify FHA and conventional mortgages. The 

defendants told the victims that their companies 

were endorsed by a department of HUD. 

Additionally, the defendants displayed the 

HUD logo on multiple documents provided to 

victims. The defendants convinced homeowners 

to send their mortgage payments directly to the 

companies instead of their respective lenders. 

The defendants kept the mortgage payments for 

personal use, causing the victims’ homes to go 

into foreclosure. More than 200 victims have 

been identified in this scheme to date, with an 

estimated $1.6 million stolen by the defendants. 

(San Diego, CA)

Former Loan Officer 

Sentenced in Mortgage Fraud 

Case After Guilty Plea

A former mortgage company loan officer was 

sentenced to 54 months incarceration and 3 

years supervised release. He was further ordered 

to pay more than $9.2 million in restitution to 

FHA. The defendant previously pled guilty to 

conspiracy to commit wire fraud. He conspired 

with others to create and submit false and 

fraudulent FHA mortgage loan applications and 

accompanying documents to a lender on behalf 

of unqualified borrowers. The defendant created 

false pay stubs, Federal tax forms, verification 

of employment forms, explanation letters, 

and other documents to ensure that otherwise 

unqualified borrowers could obtain FHA-insured 

loans. He enticed borrowers to obtain an FHA 

mortgage by paying them an incentive of up to 

$20,000 per loan. The loss to FHA is estimated 

at $6.5 million. (Miami, FL)

Former Loan Processor Sentenced 

A former loan processor for an FHA-approved 

lender was sentenced to 49 days in jail and 

3 years of supervised probation with the 

additional condition of not possessing the 

personally identifiable information of others. 

The defendant forged rental agreements 

claiming that borrowers were receiving rental 

income and submitted them in FHA loan files 

without the borrowers’ knowledge. Five FHA 

loans totaling $1.1 million were identified as 

containing forged rental agreements, and it was 

determined that the loans would not have been 

approved without the added income provided 

by the fraudulent rental agreements. To date, 

two of the FHA loans have gone to claim with 

a total loss to HUD of $307,198. In several 

instances, the buyers walked away from existing 

conventional loans once the FHA-insured loan 

was fraudulently obtained. This investigation 

was conducted with the HUD civil fraud unit. 

(Sacramento, CA) 

Two Former Mortgage Company 

Principals Plead Guilty in a 

Mortgage Fraud Scheme That 

Included Junior Mortgages

Two former principals of a HUD-approved 

mortgage company pled guilty to one count 

of racketeering following their original 

indictment in June 2011. The defendants 
Chapter 1 - Single-Family Programs 6

were involved in a complex scheme to defraud 

FHA through a series of false statements on 

at least 65 FHA loans totaling in excess of $10 

million. The fraudulent acts included the use 

of straw purchasers, phony employers, bogus 

bank statements and pay stubs, forged college 

transcripts, counterfeit court documents, 

and phony downpayment gifts. Additionally, 

the defendants profited from the scheme by 

recording junior mortgages that were payable 

to business entities or associates from the loan 

proceeds. This case was worked jointly with the 

State of Minnesota and the U.S. Department of 

Commerce OIG. (Minneapolis, MN)

Former Owner Charged Civilly 

With Mortgage Fraud

The former owner of a realty group was 

sentenced to 63 months incarceration and 3 

years supervised release and ordered to pay 

restitution of more than $1 million to victim 

financial institutions. The defendant previously 

pled guilty to wire fraud affecting a financial 

institution and false statements on a loan 

application. He placed fraudulent income and 

employment data into FHA and conventional 

loan files to get them approved. He was assisted 

with this scheme by several employees of his 

company. This case was prosecuted for violations 

of the Financial Institutions Reform, Recovery, 

and Enforcement Act, a Federal civil statute. 

This case was worked jointly with the HUD civil 

fraud unit. (Los Angeles, CA)

Former State Department 

Employee Sentenced in 

Mortgage Fraud Scheme

A former U.S. Department of State employee 

and FHA-insured borrower was sentenced to 8 

months home detention and 3 years probation 

and ordered to pay restitution to FHA. The 

defendant previously plead guilty to wire fraud 

in connection with a scheme to defraud a large 

bank by securing an FHA-insured mortgage loan 

using false documents and falsely inflating her 

income and assets. She further defrauded FHA 

and the bank by submitting false documents and 

information to secure a loan modification of the 

original FHA-insured mortgage. This case was 

worked jointly with the Department of State 

OIG. (Greenbelt, MD) 

Complex Mortgage Fraud 

Scheme Results in a Number 

of Arrests and Indictments 

Twenty Federal indictments were filed against 

real estate agents and property investors, a loan 

officer, straw buyers, and several coconspirators 

who were involved in a scheme with several 

mortgage companies. The indictments resulted 

in 19 arrests. Two of the defendants acted as 

real property investors, home improvement 

contractors, or real estate agents, while acting as 

the recruiters for straw buyers. The defendants 

identified properties in the process of foreclosure 

or properties of owners who were deceased. 

The defendants offered to buy the properties 

or find buyers for them. Once owners agreed, 

the defendants produced either false mortgage 

notes or home improvement contracts so 

they could justify collecting part of the sales 

proceeds directly from the lenders or from 

the sellers. Straw buyers were recruited, who 

applied and obtained approval for FHA-insured 

loans for the purchase of the properties. The 

defendants helped the straw buyers obtain 

false income verification documents, such as 

pay stubs, Federal tax forms, tax returns, and 

verifications of employment. The former loan 

officer assisted with the approval of the loans. 

This was a joint investigation with the Internal 

Revenue Service (IRS)-Criminal Investigation 

Division, the Federal Bureau of Investigation 

(FBI), Immigration and Customs Enforcement,

the United States Secret Service, and the Puerto 

Rico Office of the Commissioner of Financial 

Institutions. (San Juan, PR). 
7 Chapter 1 - Single-Family Programs 

Bank Officials Plead Guilty in $30 

Million Loan Fraud 

A former senior vice president and loan officer, 

a former senior vice president of residential 

lending, a former underwriter, and a former 

loan processor at a large bank pled guilty to 

conspiracy to submit false statements in loan 

applications and submitting false statements 

in loan applications to FHA. The defendants 

were involved in originating and approving 

FHA-insured loans and conventional loans that 

contained fraudulent information. The case 

involved approximately 1,900 FHA loans with a 

potential loss to FHA of $30 million. This case 

was worked jointly with the FBI, IRS, and Postal 

Inspection Service. (Tacoma, WA)

Financial Group Owner Sentenced 

in Distressed Homeowner Scheme

The owner of a financial group was sentenced to 

27 months confinement and 5 years supervised 

release and ordered to pay $544,602 in restitution 

($242,760 payable to HUD) for his earlier guilty 

plea to submitting false statements on a credit 

application. The defendant found distressed 

homeowners and convinced them to deed their 

property to a trust while leaving the mortgage 

in the name of the original homeowner. Rent 

was collected on the homes, but the mortgage 

payments were not made, causing the mortgages 

to go into foreclosure. On at least one occasion, 

fraudulent pay stubs and other documents were 

presented to the bank in an attempt to modify 

the FHA loan and prevent foreclosure. This case 

was worked jointly with the U.S. Department of 

Veterans Affairs OIG. (Waco, TX)
Chapter 2 - Public and Indian Housing Programs 8

The U.S. Department of Housing and Urban 

Development (HUD) provides grants and 

subsidies to 4,100 public housing agencies 

(PHA) nationwide. Many PHAs administer 

both public housing and Section 8 programs. 

HUD also provides assistance directly to PHAs’ 

resident organizations to encourage increased 

resident management entities and resident skills 

programs. Programs administered by PHAs are 

designed to enable low-income families, the 

elderly, and persons with disabilities to obtain 

and reside in housing that is safe, decent, 

sanitary, and in good repair. Some of the 

highlights from this semiannual period are noted 

below.

Strategic Initiative 2: 

Contribute to the reduction of erroneous 

payments in rental assistance

Audit

Program results

Audit

26 audits4

Questioned costs $25 million

Funds put to better use $5.7 million

4

Section 8 Housing Choice 

Voucher Program

HUD’s Office of Inspector General (OIG) 

audited the Housing Choice Voucher program 

of the Allegheny County Housing Authority 

in Pittsburgh, PA, to determine whether the 

4

The total public and Indian housing audits, questioned 

costs, and funds put to better use amounts include any 

American Recovery and Reinvestment Act of 2009 (11 

audits) type audits conducted in the public and Indian 

housing area. The writeups for these audits are shown 

separately in chapter 5 of this semiannual report.

Authority ensured that its Housing Choice 

Voucher program units met HUD’s housing 

quality standards.

The Authority did not conduct adequate 

inspections to ensure that its program units 

met housing quality standards as required. Of 

70 program units inspected, 57 did not meet 

HUD’s housing quality standards, and 26 were 

in material noncompliance with HUD standards.

The Authority disbursed nearly $15,000 in 

housing assistance payments and received more 

than $500 in administrative fees for these 26 

units.

OIG recommended that HUD require the 

Authority to (1) reimburse its program more 

than $15,000 from non-Federal funds for the 

26 units that materially failed to meet HUD’s 

housing quality standards and (2) use the results 

of the audit to train all of its inspectors to 

ensure that program units meet housing quality 

standards, thereby ensuring that $5.2 million 

in program funds is expended for units that are 

decent, safe, and sanitary. (Audit Report: 2012-

PH-1012)

***

HUD OIG audited the Section 8 Housing 

Choice Voucher program of the Saginaw 

Housing Commission in Saginaw, MI, to 

determine whether the Commission operated its 

program in accordance with HUD’s and its own 

requirements.

The Commission did not always administer its 

program in accordance with HUD’s and its own 

requirements. It failed to ensure that program 

participants’ Family Self-Sufficiency program 

escrow account balances were calculated 

appropriately. Specifically, it (1) underfunded 

participants’ graduation and port-out payments, 

(2) overpaid participants’ graduation and interim 

payments, (3) underfunded participants’ escrow 

Chapter 2

Public and Indian Housing Programs 
9 Chapter 2 - Public and Indian Housing Programs 

account balances, (4) failed to recapture funds 

in its system due to incorrect escrow account 

balances, and (5) failed to maintain required 

documentation in its participants’ files. Further, 

the Commission failed to (1) appropriately use 

HUD’s Enterprise Income Verification system

income discrepancy reports and (2) recover or 

reimburse its Section 8 Housing Choice Voucher 

program housing assistance and utility allowance 

payments for households with unreported or 

underreported income. As a result, HUD and 

the Commission lacked assurance that more 

than $1 million in program funds was used 

appropriately. 

OIG recommended that HUD require the 

Commission to (1) reimburse its Family SelfSufficiency program nearly $22,000 for escrow 

overpayments, (2) reimburse its participants 

nearly $12,000 for the underpayment of escrow 

funds, (3) provide support or reimburse HUD 

more than $812,000 from non-Federal funds, (4) 

ensure that nearly $178,000 in program funds 

was used appropriately, and (5) implement 

adequate procedures and controls to address the 

findings cited. (Audit Report: 2012-CH-1012)

***

HUD OIG audited the Housing Choice 

Voucher program of the Maine State Housing 

Authority in Augusta, ME, pertaining to its 

housing quality standards inspections and 

other expenditures and procurements using 

HUD funds, based on a congressional request.

The objectives of the audit were to determine 

whether (1) the Authority’s Housing Choice 

Voucher program units selected for review met 

housing quality standards and (2) the use of 

HUD funds for expenditures and procurements 

complied with HUD rules and regulations. 

Of 61 units inspected, 53 did not meet HUD’s 

housing quality standards. Authority officials 

did not have adequate oversight of contracted 

program agents and had an ineffective quality 

control system for their own inspectors. There 

were units that should have failed inspection 

due to deficiencies but were instead passed, and 

Authority officials continued to make housing 

assistance payments for these inadequate units.

As a result, some tenants lived in units that did 

not meet HUD’s standards for decent, safe, and 

sanitary housing, and Authority officials made 

housing assistance payments for units that did 

not meet housing quality standards.

In addition, although Authority officials 

generally charged expenses to HUD programs 

that were eligible, reasonable, and supported, 

they awarded a contract to an information 

technology consultant without following HUD’s 

or their own procurement regulations or policies 

for noncompetitive proposals. From January 1, 

2010, to December 31, 2011, the Authority paid 

the consultant more than $848,000, of which 

nearly $112,000 was charged to the Homeless 

Management Information Systems program.

OIG recommended that HUD require Authority 

officials to (1) repay the Housing Choice 

Voucher program nearly $195,000 from nonFederal funds and (2) conduct an independent 

cost analysis of the funds charged to the 

Homeless Management Information Systems 

program to determine whether costs were 

eligible, reasonable, and supported. (Audit 

Report: 2012-BO-1005)

Public Housing Program Activities

HUD OIG audited the financial and 

procurement operations of the Housing 

Authority of the City of Port Arthur, TX, to 

determine whether the Authority had sufficient 

financial and procurement controls to ensure 

that it used HUD funds in accordance with 

laws, regulations, and policies, including 

whether the internal control environment was 

designed to provide reasonable assurance about 

the achievement of the Authority’s mission, 

goals, and objectives. Also, OIG reviewed the 

Authority’s capital funds to determine whether 

the Authority complied with its consolidated 

annual contributions contract.

The Authority failed to establish a control 
Chapter 2 - Public and Indian Housing Programs 10

environment designed to provide reasonable 

assurance about the achievement of its mission, 

goals, and objectives. It (1) failed to enact 

policies and procedures to ensure the integrity 

of financial operations and compliance with 

procurement requirements, (2) abused its charge 

card accounts, and (3) paid its management and 

board ineligible and unsupported compensation.

Further, the Authority’s resident commissioner 

was not a resident of the Authority so he was not 

eligible to serve on the board of commissioners 

according to HUD and State rules. The 

Authority also (1) improperly administered its 

Public Housing Capital Fund program and drew 

down more than $469,000 in unused funds that 

it had not expended and (2) imposed a scope 

limitation on the audit, which limited OIG’s 

ability to completely assess the Authority’s 

operations. As a result, the Authority incurred 

questioned costs of more than $5.9 million and 

violated its annual contributions contract, and 

its lack of controls put it at substantial risk for 

fraud, errors, and financial misstatements.

OIG recommended that HUD (1) determine 

whether the Authority was in substantial default 

of its annual contributions contract and take 

appropriate administrative actions against 

its executive director and commissioners; (2) 

require the Authority to adopt and implement 

policies and procedures to control its financial 

and procurement operations, repay more than 

$462,000 in ineligible costs, and support or repay 

almost $5 million in unsupported costs to HUD; 

and (3) recapture the unexpended capital funds. 

(Audit Report: 2012-FW-1008)

***

HUD OIG audited the Lawrence Housing 

Authority in Lawrence, MA, regarding its 

administration of HUD programs, to determine 

whether the Authority had acceptable 

management and financial practices to 

efficiently and effectively administer the use 

of Section 8 and public housing program funds 

in compliance with its annual contributions 

contracts and HUD requirements. 

The Authority generally had acceptable 

management and financial practices to 

efficiently and effectively administer the use 

of HUD Section 8 and low-income public 

housing program funds in compliance with 

its annual contributions contracts and HUD 

requirements. However, Authority officials did 

not seek HUD approval to (1) establish a trust 

for their other postemployment benefits, (2) 

transfer $2.5 million in reserves to fund the 

trust, and (3) restrict the use of these funds to 

the trust exclusive of any other housing-related 

purpose. In addition, Authority officials did 

not (1) properly delegate procurement duties, 

(2) monitor or prevent interfund borrowing, 

(3) have adequate procedures for tracking and 

reviewing the Authority’s force account labor 

projects, and (4) update the Authority’s travel 

policy. As a result, the Authority did not (1) 

assign procurement duties in writing, (2) have 

sufficient awareness of interfund imbalances, (3) 

have a sufficient system to determine whether 

the use of force account labor was reasonable, or 

(4) have a travel policy that was adequate.

OIG recommended that HUD require 

Authority officials to provide proper supporting 

documentation to show how the Federal funds 

used to fund a trust benefited each Federal 

program or repay the funds to the Federal 

program. Further, HUD should obtain a legal 

opinion identifying whether this trust constitutes 

an investment and was properly created and 

whether Federal funds may be used to pay for 

other postemployment benefits. In addition, 

Authority officials should strengthen their 

management controls by updating their (1) 

procurement policy to delegate procurement 

authority to employees, (2) procedures to 

prevent interfund accounts, and (3) methods of 

tracking force account labor. Also, the updated 

travel policy should be submitted to HUD and 

implemented. (Audit Report: 2012-BO-1004)

***

HUD OIG reviewed HUD’s receivership of 

the East St. Louis Housing Authority in East 

St. Louis, IL, to determine whether HUD 
11 Chapter 2 - Public and Indian Housing Programs 

effectively oversaw and managed the recovery 

and turnaround of the Authority during the 

3-year period ending in September 2011.

HUD did not effectively oversee and manage 

the recovery and turnaround of the Authority.

Specifically, it did not have an adequate structure 

for its staff and did not develop a receivership 

plan specific to the Authority. As a result, the 

Authority continued to be under receivership 

after 26 years and continued to experience 

significant management and operational 

deficiencies.

OIG recommended that HUD (1) develop and 

implement a receivership plan for the Authority 

that includes sufficient assessments, decision 

points, measurable goals, and accountability 

mechanisms; (2) improve its structure for 

managing receiverships; (3) permanently fill the 

director position in its Office of Receivership 

Oversight; and (4) develop adequate 

accountability mechanisms for HUD staff 

members whose primary responsibilities involve 

receiverships. (Audit Report: 2012-KC-0003)

Investigation

Program results Investigations

Administrative-civil actions 75

Convictions-pleaspretrial diversions 157

Financial recoveries $5,663,485

Former City Department of 

Neighborhood Development 

Official Convicted of Mortgage 

and Section 8 Fraud

A former program manager of a large city’s 

Department of Neighborhood Development 

was sentenced to 41 months imprisonment 

and 3 years supervised release and ordered to 

pay restitution of $535,676, of which $67,037 

was ordered to be paid to the Boston Housing 

Authority. The defendant was previously 

convicted of bank fraud, wire fraud, and theft 

of public money. From May 2003 through 

January 2009, the defendant was involved in 

a mortgage fraud scheme that involved six 

properties, including her own residence. Two 

of the properties were obtained with FHAinsured mortgage loans. The defendant was 

involved in recruiting straw buyers, providing 

false information to lenders to secure mortgages 

on properties, collecting proceeds from property 

flips, and collecting rents that included HUD 

Section 8 payments from tenants who resided in 

the fraudulently obtained properties. To execute 

another part of the scheme, the defendant 

created false identification documents, which 

she provided to the Boston Housing Authority 

to pose as a landlord and then collected HUD 

Section 8 payments for her own residence under 

this false identity. This scheme caused HUD 

to lose approximately $650,000. This case 

was worked jointly with the Federal Bureau of 

Investigation (FBI), the U.S. Postal Service, and 

the Boston Police Department. (Boston, MA)

Two Brothers Sentenced 

for Scheme To Defraud 

Housing Authority

Two brothers of the former director of the 

Housing Authority of the City of Los Angeles 

were sentenced to 21 months incarceration and 

ordered to pay $526,727 jointly to the Authority 

as a result of their guilty pleas to conspiracy 

to steal government money. One brother was 

employed as the director of technical services 

for an organization that received HUD funds 

for public housing construction projects fixing 

units occupied by disabled residents. From 

August 2003 through June 2007, this defendant 

steered contracts to shell companies operated by 

his brother. As a result, approximately $526,727 

in HUD funds was diverted and used for personal 

gain. The brothers double-billed the Authority for 

construction work that was actually performed by 

an in-house construction company. The former 

director pled guilty in August 2012 for his role in 
Chapter 2 - Public and Indian Housing Programs 12

the scheme and is scheduled to be sentenced in 

October 2012. This case was worked jointly with 

the FBI. (Los Angeles, CA)

Former Executive Director 

Sentenced for Stealing 

Housing Authority Funds

The former executive director of the Jacksonville 

Housing Authority was sentenced to 5 years 

probation and 6 months home confinement and 

ordered to pay $37,475 in restitution to HUD 

for her earlier guilty plea to theft of government 

funds. From September 2007 to April 2008, 

the defendant devised and executed a scheme 

to steal $37,475 from Authority program funds 

by using the Authority’s credit cards, fuel, 

computer, and rental cars for her own personal 

use. She also increased her salary without 

authorization. (Jacksonville, TX)

Former Section 8 Tenant 

and Husband Sentenced for 

Stealing More Than $400,000

A former King County Housing Authority 

Housing Choice Voucher program recipient 

and her husband-landlord were sentenced for 

providing false statements to the Authority, 

the Social Security Administration, and the 

Washington State Department of Social and 

Health Services in order to receive benefits. 

The defendant was sentenced to 18 months 

confinement and 3 years supervised release and 

ordered to pay $261,643 in restitution. The 

husband-landlord was sentenced to 18 months 

confinement and 3 years supervised release and 

ordered to pay $160,359 in restitution and a 

criminal monetary penalty of $30,000. (Seattle, 

WA)
13 Chapter 3 - Multifamily Housing Programs 

In addition to multifamily housing developments 

with U.S. Department of Housing and Urban 

Development (HUD)-held or HUD-insured 

mortgages, the Department owns multifamily 

projects acquired through defaulted mortgages, 

subsidizes rents for low-income households, 

finances the construction or rehabilitation of 

rental housing, and provides support services 

for the elderly and handicapped. Some of the 

highlights from this semiannual period are 

shown below.

Strategic Initiative 2: 

Contribute to the reduction of erroneous 

payments in rental assistance

Audit

Program results

Audit

3 audits

Questioned costs $1.5 million

Funds put to better use $275,000

Review of Section 

220-Insured Property

The HUD Office of Inspector General (OIG) 

audited the West Village Expansion Project in

Durham, NC, a HUD Section 220-insured 

property, to evaluate the merits of a citizen’s 

complaint and determine whether the owner 

administered the project in accordance with its 

regulatory agreement with HUD.

The owner violated its regulatory agreement 

when it repaid more than $502,000 for previous 

advances from its managing member’s principals, 

paid $225,000 for unnecessary legal expenses, 

did not pay its mortgage in a timely manner, 

and underfunded the project’s replacement 

reserve account by more than $36,000. It took 

these actions without HUD approval at a time 

when the property had no surplus cash and 

the mortgage was delinquent. As a result, the 

project had fewer funds to operate, pay for future 

repairs, and keep the mortgage out of default, 

thus placing HUD at risk for the $54 million 

mortgage. 

On July 20, 2012, a new investor provided funds 

to bring the mortgage and required escrows 

current as well as fund the unauthorized 

distributions cited. Accordingly, all issues were 

resolved, and OIG’s recommendations were 

closed. (Audit Report: 2012-AT-1014)

Investigation

 

Program results Investigations

Administrative-civil actions 18

Convictions-pleaspretrial diversions 27

Financial recoveries $2,748,668

Former HUD Employee Pleads 

Guilty to Theft Charges

A former HUD multifamily housing employee 

pled nolo contendere to charges of theft of 

personal property and was sentenced to 36 months 

probation and 15 days in the county jail. The 

defendant altered his personal identity verification 

credential card and payroll statements and forged 

Federal tax forms to reflect the photographs 

and names of other individuals, including 

fictitious government employees, to facilitate a 

scheme to illicitly purchase high-end electronic 

merchandise from an Internet electronic vendor 

without making proper payment for the items. 

Chapter 3

Multifamily Housing Programs 
Chapter 3 - Multifamily Housing Programs 14

The employee used his official HUD-assigned 

computer, while in the work place, to facilitate 

his scheme. Upon receiving the items, he posted 

them for sale on the Craigslist Internet Web site, 

using his HUD computer, and conducted email 

communication to negotiate the sale of the illicitly 

acquired items using his official HUD government 

email account. (Los Angeles, CA)

Former HUD Multifamily Housing 

Director Pleads Guilty in Scheme 

With Multifamily Owners

A former HUD multifamily housing director 

pled guilty to conspiracy in September 2012. 

From June 2007 to December 2008, the 

defendant accepted approximately $38,000 from 

coconspirators to facilitate and approve an FHAinsured multifamily housing loan in the amount 

of $1.5 million. The defendant underwrote and 

processed the loan in-house at HUD after a 

private lender could not recommend approval of 

the loan; directed staff to sign certain documents 

necessary for the loan to proceed to him for 

approval; approved a waiver allowing the use of 

letters of credit in lieu of a cash downpayment, 

which the coconspirators did not have; and 

waived certain inspections of the property. The 

multifamily project owners were suspended 

by HUD’s Departmental Enforcement Center

following an indictment on charges of bribery, 

false statements, and mail fraud. Additionally, 

the project owners submitted false certifications 

to obtain housing assistance payments for the 

property they owned. (St. Louis, MO)

Former HUD Employee 

Pleads Guilty to Submitting 

False Documents

A former HUD employee was removed from his 

position as project manager in a multifamily 

housing program office after pleading guilty to 

submitting false documents to HUD and was 

sentenced to 1 year probation. The defendant 

falsified Standard Forms 50 on job applications 

while applying for employment positions within 

HUD. (Denver, CO)
15 Chapter 4 - Community Planning and Development Programs 

The Office of Community Planning and 

Development (CPD) seeks to develop viable 

communities by promoting integrated 

approaches that provide decent housing, suitable 

living environments, and expanded economic 

opportunities for low- and moderate-income 

persons. The primary means toward this end is 

the development of partnerships among all levels 

of government and the private sector. Some of 

the highlights from this semiannual period are 

shown below.

Strategic Initiative 3: 

Contribute to the strengthening 

of communities

Audit

Program results

Audit

22 audits5

Questioned costs $45.5 million

Funds put to better use $11.3 million

5

The U.S. Department of Housing and Urban 

Development, Office of Inspector General 

(HUD OIG), audited the Community 

Development Block Grant (CDBG) program, 

the HOME Investment Partnerships Program

(HOME), and the Neighborhood Stabilization

Program 1 (NSP1). While OIG’s objectives 

varied by auditee, the majority of the reviews 

were to determine whether the grant funds were 

administered for eligible activities and that the 

auditee met program objectives.

5 The total CPD audits, questioned costs, and funds put 

to better use amounts include any American Recovery 

and Reinvestment Act of 2009 (eight audits) and disaster 

recovery (two audits) type audits conducted in the CPD 

area. The writeups for these audits are shown separately in 

chapters 5 and 6 of this semiannual report. 

Community Development 

Block Grant Programs

HUD OIG audited the City of Elizabeth, NJ’s

administration of its CDBG program and found 

that City officials did not always administer 

the City’s CDBG program in accordance with 

Federal regulations and program requirements.

Specifically, CDBG funds were expended for 

ineligible and unsupported costs, program 

income was not properly recognized and used, 

liens were not imposed on assisted properties, 

and subrecipient monitoring and compliance 

with other program requirements were not 

adequate. Consequently, (1) nearly $400,000 

and nearly $194,000 were expended on ineligible 

and unsupported costs, respectively, (2) program 

income of more than $870,000 was not reported 

and made available for eligible CDBG activities, 

(3) HUD’s interest in two assisted properties 

totaling more than $4.2 million was not 

protected, and (4) officials did not adequately 

monitor subrecipients and comply with program 

administrative requirements.

OIG recommended that City officials (1) 

reimburse the City’s CDBG line of credit 

from non-Federal funds for the ineligible 

expenses; (2) provide documentation to support 

the unsupported expenditures and if such 

documentation cannot be provided, reimburse 

the City’s CDBG line of credit from nonFederal funds; (3) reimburse the CDBG line of 

credit for unreported program income of more 

than $475,000; (4) provide documentation to 

enable HUD to determine whether the City was 

entitled to program income of nearly $264,000; 

(5) impose liens or other appropriate notices 

of record on two real properties assisted with 

Federal funds to ensure that HUD’s and the 

City’s interest is adequately protected; and 

(6) strengthen internal controls to ensure that 

the City’s CDBG program is administered in 

accordance with Federal regulations and program 

requirements. (Audit Report: 2012-NY-1011)

Chapter 4

Community Planning and Development Programs 
Chapter 4 - Community Planning and Development Programs 16

HUD OIG performed a corrective action 

verification of recommendation 1B in audit 

report 2008-FW-1012, “The City of Tulsa, OK, 

Allowed Its Largest Subrecipient To Expend $1.5

Million in Unsupported CDBG Funding.” OIG 

expanded the review to include recommendation 

1C. The purpose of the review was to determine 

whether HUD closed recommendations 1B and 

1C in accordance with requirements and actions 

taken to resolve the underlying findings.

HUD closed the recommendations before the 

City of Tulsa required the Tulsa Development 

Authority to implement specific plans to 

dispose of land purchased with CDBG funds 

and remit program income earned on the land.

The Authority still held land valued at more 

than $3.1 million without specific plans for its 

use and retained at least $42,000 in program 

income. In addition, the Authority did not 

provide supporting documentation to ensure 

that it correctly computed and remitted program 

income to the City for two properties that it sold.

OIG recommended that HUD require the City 

to repay HUD the higher of the current cost 

or market value for the land the Authority still 

holds and either support or repay more than $2 

million for the two properties it sold without 

supporting calculations of program income 

remitted. Due to the inability of the City to use 

these funds for eligible CDBG activities, the 

City should return the funds to HUD. HUD 

should also require the City to report monthly 

on its actions to return the funds and obtain 

prior HUD approval before funding future land 

acquisitions with CDBG funds. Further, HUD 

should reopen recommendation 1C concerning 

the remittance and use of program income. 

(Audit Memorandum: 2012-FW-1803)

HOME Investment 

Partnerships Program

HUD OIG audited Prince George’s County, 

MD’s administration of its HOME program

and found that the County generally did not 

administer its HOME program in accordance

with HUD requirements and guidelines. It 

did not ensure that three of its four active 

community housing development organizations 

were eligible and operating in compliance with 

program requirements. It also improperly 

committed HOME funds and could not show

that it followed requirements related to HOME

funds it provided for rental, downpayment, and 

rehabilitation assistance. As a result, it made 

ineligible disbursements and could not properly 

account for all disbursements. The County also 

had excess, improperly committed, or underused 

HOME funds.

OIG recommended that HUD require the 

County to (1) repay its HOME program $2.4

million in ineligible expenses, (2) provide 

support for $1.3 million in expenses or repay 

the unsupported amount to the program, (3) 

reprogram $4.7 million in HOME funds as

appropriate for eligible program activities and to 

improve its administration of the program, and 

(4) implement procedures to ensure that HOME

funds are disbursed and used in compliance with 

applicable requirements. (Audit Report: 2012-

PH-1011)

***

HUD OIG audited the Municipality of 

Bayamón, PR’s HOME program and found that

the Municipality’s financial management system 

(1) did not properly identify the source and 

application of more than $3.5 million in HOME

funds, (2) did not support the eligibility of 

more than $288,000 in program charges, and (3) 

failed to disburse more than $420,000 in HOME

funds within HUD-established timeframes. As 

a result, HUD lacked assurance that funds were 

adequately accounted for, safeguarded, and used 

in accordance with HUD requirements. 
17 Chapter 4 - Community Planning and Development Programs 

The Municipality disbursed more than $703,000 

in HOME funds for two activities that showed

signs of slow progress without assurance that the 

activities would generate the intended benefits.

As a result, HUD had no assurance that funds 

were used solely for eligible purposes and that 

HOME-funded activities met program objectives

and fully provided the intended benefits.

The Municipality (1) reported to HUD more 

than $901,000 in HOME commitments without

executing a written agreement or identifying 

the property in accordance with HUD 

requirements, (2) failed to reprogram and put 

to better use more than $48,000 in unexpended 

obligations associated with two activities that 

were terminated, and (3) did not report and 

put to better use more than $62,000 in program 

income and recaptured funds. As a result, HUD 

had no assurance that the Municipality met 

HOME program objectives, commitments, and

disbursement requirements.

OIG recommended that HUD require the 

Municipality to (1) provide all supporting 

documentation to demonstrate the eligibility 

and allocability of more than $4 million in 

HOME program funds; (2) reprogram or return

to its line of credit and put to better use more 

than $1.3 million in unexpended obligated funds 

and HOME funds maintained in its local bank

account; and (3) develop and implement an 

internal control plan to ensure that its financial 

management system complies with HUD 

requirements, its HOME-funded activities meet

the program objectives, and accurate information 

is reported to HUD. (Audit Report: 2012-AT1009)

***

HUD OIG reviewed HUD’s technical assistance 

for the HOME program, based upon a

congressional request, and found that CPD 

did not have a centralized system or database 

that allowed it to sufficiently track all program 

technical assistance activities and efficiently and 

effectively provide information on completed 

activities.

OIG recommended that HUD implement 

adequate procedures and controls to ensure 

that CPD (1) uses the tracking mechanisms 

within HUD’s systems to sufficiently track 

all technical assistance activities regarding 

the HOME program, once HUD’s OneCPD

Integrated Practitioner Assistance System is 

fully implemented, and (2) sufficiently tracks 

all technical assistance activities regarding 

the program until it fully implements HUD’s 

OneCPD Integrated Practitioner Assistance 

System. (Audit Memorandum: 2012-CH0801)

Neighborhood 

Stabilization Program 1

HUD OIG audited the NSP1 administered 

by the Texas Department of Housing and 

Community Affairs in Austin, TX, and found 

that the Department improperly obligated more 

than $42,000. In addition, it could not support 

more than $25 million in obligations made by 

the deadline and nearly $9,000 in expenditures.

Further, it did not report on its progress as 

required and did not appear to be on schedule 

to spend funds within required timeframes. As 

a result, the Department could not assure HUD 

that it properly managed its more than $101 

million program.

OIG recommended that HUD recapture 

the improperly obligated funds and require 

the Department to provide support for the 

unsupported obligations and costs. (Audit 

Report: 2012-FW-1013)
Chapter 4 - Community Planning and Development Programs 18

Investigation

Program results Investigations

Administrative-civil actions 14

Convictions-pleaspretrial diversions 22

Financial recoveries $1,104,222

Former Property Developer 

Sentenced in HOME Funds Fraud

A former property developer was sentenced to 

serve 14 months in Federal prison followed by 36 

months of Federal probation and ordered to pay 

$180,000 in court-ordered restitution, including 

$139,198 payable to HUD and $40,802 payable 

to a national bank. The defendant previously 

pled guilty to theft of government funds and 

filing false claims. The defendant presented 

false claims to a city’s Office of Economic and

Community Development. He fraudulently used 

HOME funds, which should have been used to

rehabilitate three low-income properties in an 

urban community, for his own personal use. This 

case was worked jointly with the Lewiston, ME,

Police Department. (Portland, ME) 

Builder Sentenced in HOME 

Funds Bribery Case

A builder was sentenced to serve 48 months in 

prison and ordered to pay $66,449 in restitution. 

The defendant previously pled guilty to seven 

counts of wire fraud in connection with 

attempting to obtain more than $1.9 million 

in public financing, to include $800,000 in 

CPD HOME funds, for a failed development

located in an urban community. The defendant 

contracted with a city to construct a $5.6 million 

low-income affordable housing project. Instead, 

he provided cash payments and promises of 

future employment to the director of the city’s 

Community Development Department. The 

defendant admitted that he did this to ensure 

that he would receive favorable treatment from 

the city as he attempted to develop the project. 

A second individual also pled guilty in May 2011 

to aiding and abetting, wire fraud, and bribery 

for accepting improper benefits in connection 

with business conducted by his office. The 

second defendant unlawfully obtained $66,449 in 

CPD HOME funds from the city’s Community

Development Department. He was ordered to 

pay restitution to that Department. This case 

was worked jointly with the Federal Bureau of 

Investigation (FBI) and Internal Revenue ServiceCriminal Investigation Division. (East St. 

Louis, IL)

Former CDBG Grant 

Administrator Sentenced in 

Misuse of Funds Case

A former CDBG grant administrator was 

sentenced to 36 months probation and ordered 

to pay restitution to HUD in the amount of 

$116,064. The defendant pled guilty earlier to 

one count of HUD fraud. Between October 

2002 and July 2006, the defendant received 

a salary from a city department as the grant 

administrator and also formed a company for 

which he was paid as the executive director. As 

part of the defendant’s responsibilities as the 

CDBG grant administrator, he was responsible for 

overseeing how the city spent its CDBG funds. 

The defendant awarded several CDBG contracts 

to the company for which he was the executive 

director. He collected a salary from the city as a 

grant administrator and also collected a salary as 

the executive director of his company, which was 

paid using HUD CDBG funds. The loss to HUD 

was more than $116,000. This case was worked 

jointly with the FBI. (Salt Lake City, UT) 
19 Chapter 4 - Community Planning and Development Programs 

Asbestos Contractor Sentenced 

in Scheme To Defraud HUD

An asbestos abatement contractor was sentenced 

to 21 months imprisonment and 2 years 

supervised release after pleading guilty to one 

count of conspiracy to defraud the government. 

A second defendant was sentenced to 36 months 

imprisonment and 2 years supervised release. 

The first defendant conspired to submit a false 

claim to HUD and made a false statement under 

the Federal Clean Air Act relating to a contract 

to remove asbestos and demolish a dilapidated 

theater using a HUD NSP1 grant. Additionally, 

the defendant conspired to give money to the 

second defendant, a town supervisor, and a town 

grant coordinator to influence the award of the 

demolition contract he received. This case was 

worked jointly with the FBI and Environmental

Protection Agency OIG. (Detroit, MI) 
Chapter 5 - American Recovery and Reinvestment Act of 2009 20

The U.S. Department of Housing and Urban Development (HUD) has received $13.61 billion in 

funding under the American Recovery and Reinvestment Act of 2009 (ARRA) in several housing 

program areas. Table 1 shows the HUD program areas receiving funding and the amounts 

appropriated to each program.

Table 1: HUD programs receiving ARRA funding

HUD program office Program area Funding amount

Office of Public and 

Indian Housing

Public Housing Capital Fund

Native American 

Housing Block Grant

$4,000,000,000

$510,000,000

Office of Community 

Planning and Development

Community Development 

Block Grant

Neighborhood 

Stabilization Program

HOME Investment

Partnerships Program-Tax 

Credit Assistance Program

Homelessness Prevention Fund

$1,000,000,000

$2,000,000,000

$2,250,000,000

$1,500,000,000

Office of Multifamily Housing

Assisted Housing 

Stability Grant

Green Retrofit Grant

$2,000,000,000

$250,000,000

Office of Healthy Homes 

and Lead Hazard Control

Lead Hazard Reduction 

Demonstration Program

$100,000,000

$13,610,000,000

 

Chapter 5

American Recovery and Reinvestment Act of 2009 
21 Chapter 5 - American Recovery and Reinvestment Act of 2009 

Strategic Initiative 3: Contribute to 

the strengthening of communities

Audit

The Office of Audit’s overall oversight objectives 

for HUD funding under ARRA are to determine 

whether

•	 Funds are awarded and distributed in a 

prompt, fair, and reasonable manner;

•	 The recipients and uses of all funds are 

transparent to the public, and the public 

benefits of these funds are reported clearly, 

accurately, and in a timely manner;

•	 Funds are used for authorized purposes, and 

instances of fraud, waste, error, and abuse are 

mitigated;

•	 Projects funded under ARRA avoid 

unnecessary delays and cost overruns; and

•	 Program goals are achieved, including 

specific program outcomes and improved 

results on broader economic indicators.

In the prior semiannual reporting periods, 

HUD’s Office of Inspector General (OIG) 

reviewed HUD’s front-end risk assessments, 

audited HUD’s formula allocation dictated in 

ARRA programs, assessed the administrative 

capacity of selected grantees to effectively 

administer ARRA funds, and assessed grantee 

expenditures and HUD’s oversight activities. 

During this semiannual reporting period, OIG’s 

audits continue to focus on grantee expenditures 

and HUD’s oversight activities. 

The following section demonstrates the audit 

work that has been completed during this 

reporting period. 

Program results

Audit

21 audits6

Questioned costs $22.4 million

Funds put to better use $9.6 million

6

Review of Overall ARRA Program 

HUD OIG audited HUD’s oversight of four 

selected housing programs funded by ARRA 

to determine whether HUD (1) monitored the 

recipients to ensure that ARRA funds would be 

fully expended by the expenditure due dates 

and (2) ensured that expired unliquidated funds 

would be recaptured and returned to the U.S. 

Department of the Treasury in accordance with 

the Pay-It-Back Act.

HUD adequately monitored ARRA recipients 

to ensure that (1) ARRA funds would be fully 

expended by the expenditure due dates and (2) 

unliquidated but expired ARRA funds would 

be identified and recaptured as appropriate.

However, HUD was not effective in ensuring that 

$9.52 million in expired and unused ARRA funds 

would be returned promptly to the Treasury in 

accordance with the intent of the Pay-It-Back 

Act.

OIG recommended that HUD establish 

policies and procedures governing the return 

of recaptured ARRA funds and immediately 

transfer the expired and unused ARRA funds 

to the Treasury’s general fund. (Audit Report: 

2012-FO-0006)

6

The total ARRA-related audits consist of community 

planning and development, public and Indian housing, 

and “other” audits. The questioned costs and funds put to 

better use amounts relate only to ARRA-related costs.
Chapter 5 - American Recovery and Reinvestment Act of 2009 22

Office of Public and Indian 

Housing Audits and Reviews

Public Housing Capital Fund 

HUD OIG audited the Public Housing Capital 

Fund Stimulus (Formula) program, funded 

under ARRA, awarded to the Buffalo Municipal 

Housing Authority in Buffalo, NY, to determine 

whether Authority officials (1) procured 

contracts in accordance with HUD regulations 

and (2) obligated and expended capital funds in 

accordance with ARRA and submitted mandated 

reports in a timely manner and with accurate 

information.

Authority officials did not always comply with 

the procurement requirements of the ARRA 

program and, therefore, did not properly 

obligate ARRA funds. Specifically, Authority 

officials did not ensure that the procurement 

of ARRA contracts was conducted in a manner 

that provided full and open competition.

In addition, payments were made on other 

obligations that were executed after the ARRA 

obligation deadline. Authority officials charged 

questionable expenditures to the ARRA Capital 

Fund grant. Specifically, they (1) expended 

ARRA funds on nondwelling equipment 

purchases that benefited their central office cost 

center, (2) requisitioned funding from HUD’s 

Line of Credit Control System in excess of the 

amounts needed, (3) failed to expend funds 

in accordance with their ARRA Capital Fund 

annual statement, and (4) did not accurately 

report ARRA expenditure and job creation or 

retention information.

OIG recommended that HUD instruct Authority 

officials to (1) provide documentation or 

justification for more than $9.7 million expended 

on costs that did not meet ARRA procurement 

and obligation requirements and reimburse 

the U.S. Treasury the amounts determined to 

be ineligible from non-Federal or other eligible 

funds, (2) reimburse the U.S. Treasury from nonFederal funds nearly $111,000 that was expended 

on ineligible costs pertaining to nondwelling 

equipment purchases for their central office 

cost center, and (3) provide documentation to 

justify more than $30,000 in unsupported costs 

requisitioned in excess of the Authority’s needs. 

(Audit Report: 2012-NY-1012)

HUD OIG audited the ARRA Public Housing 

Capital Fund competitive grants awarded 

to the Flint Housing Commission, in Flint, 

MI, to determine whether the Commission 

administered its grants in accordance with 

ARRA, HUD’s, and its own requirements.

The Commission generally complied with the 

requirements of the Davis-Bacon Act for all four 

of its ARRA competitive grants. However, it 

failed to follow HUD’s and its own procurement 

requirements for its ARRA competitive 

grants. Specifically, it did not (1) provide an 

adequate rationale for using a noncompetitive 

procurement method for its ARRA contracts, (2) 

prepare an independent cost estimate or analysis 

before the solicitation of offers, and (3) obtain 

approval from HUD and its board before revising 

its plan for use of the funds. Additionally, 

the Commission did not (1) issue payments 

to its contractor in accordance with HUD’s 

requirements and (2) ensure that its contractor 

included Section 3 clauses in contracts for 

work funded by the ARRA grants. As a result, 

the Commission hindered full and open 

competition, and HUD and the Commission 

lacked assurance that ARRA competitive grant 

funds were used appropriately. 

OIG recommended that HUD require the 

Commission to (1) reimburse HUD more than 

$3 million in grant funds for the inadequate 

procedures used in the procurement process 

and (2) implement adequate procedures and 

controls to ensure that contracts are awarded 

and managed in accordance with HUD’s 

requirements and its own procurement policy. 

(Audit Report: 2012-CH-1013)

***
23 Chapter 5 - American Recovery and Reinvestment Act of 2009 

HUD OIG audited HUD’s Public Housing 

Capital Fund program and ARRA Capital Fund 

program monitoring procedures to determine 

whether HUD’s Capital Fund program 

monitoring procedures and reporting system 

details were adequate to ensure that public 

housing agencies disclosed and used property 

insurance recoveries in accordance with program 

requirements.

HUD did not adequately monitor insurance 

recoveries to ensure that public housing agencies 

appropriately applied the applicable credits 

either as a cost reduction or cash refund as 

appropriate. HUD’s program guidance was 

outdated, and the procedures for the annual 

in-office review of the agencies’ ongoing capital 

activities and for monitoring ARRA program 

grants were not sufficiently detailed to address 

the review of insurance recoveries. In addition, 

the information HUD required agencies to 

submit in their annual plans and in HUD’s 

Financial Assessment Sub-System lacked 

sufficient detail to be effectively used in the 

monitoring of insurance recoveries.

OIG recommended that HUD (1) update 

its information collection requirements to 

ensure that public housing agencies disclose 

insurance recoveries, (2) revise its policies and 

procedures to ensure oversight of the disclosure 

of insurance recoveries, and (3) issue a notice 

with guidance for public housing agencies related 

to the procedures for the disclosure and use of 

insurance recoveries. (Audit Report: 2012-LA0004)

Office of Community 

Planning and Development 

Audits and Reviews

Community Development 

Block Grant Program

HUD OIG reviewed the Community 

Development Block Grant-Recovery (CDBG-R) 

program of the City of St. Louis, MO, to 

determine whether the City complied with 

applicable ARRA requirements for CDBG-R 

funds and properly reported its ARRA activities.

The City did not comply with applicable 

requirements for CDBG-R funds and did not 

properly report its ARRA activities. Specifically, 

it (1) approved contracts that did not comply 

with Federal procurement requirements, (2) 

did not adequately enforce Davis-Bacon Act 

or Section 3 requirements, and (3) reported 

incomplete and inaccurate information. As 

a result, the City used CDBG-R funds for 

unsupported expenses, failed to ensure that 

all contractors paid the appropriate wages 

and disadvantaged workers received economic 

opportunities, and did not have transparency in 

its reported use of ARRA funds.

OIG recommended that HUD require the City 

to (1) support that more than $1.3 million 

in ARRA contracts awarded was granted 

at a reasonable cost and repay any amount 

determined to be unreasonable or ineligible, (2) 

review all payments to its contractors’ employees 

to determine whether wage restitution is 

owed, and (3) make any needed corrections 

in FederalReporting.gov. In addition, OIG 

recommended that HUD assist the City in 

receiving formal training on the issues identified. 

(Audit Report: 2012-KC-1006)

Neighborhood 

Stabilization Program

HUD OIG audited the City of Phoenix, AZ’s

Neighborhood Stabilization Program (NSP) 

1 and 2 grants to determine whether the City 

administered its NSP2 grant in accordance with 

HUD requirements. OIG also reviewed the 

Park Lee Apartments rehabilitation activity for 

compliance with NSP1 and NSP2 requirements.

The City did not administer its NSP1 and 

NSP2 grants in accordance with HUD rules and 

regulations. Specifically, the City’s rehabilitation 

contract administration was not adequate and 

did not comply with the NSP2 grant agreement, 
Chapter 5 - American Recovery and Reinvestment Act of 2009 24

resulting in an insufficient contract scope of 

work, inadequate oversight and verification of 

contract work and expenditures, insufficient 

maintenance of procurement documentation, 

inappropriate contract modifications, 

installation of substandard air conditioning 

units, and noncompliance with the grant’s buy 

American requirements. Additionally, the City 

inappropriately charged the NSP1 and NSP2 

grants for actual losses that could have been 

covered by insurance, unsupported Park Lee 

Apartments additional payments, and salaries 

and wages that did not comply with Federal cost 

principles.

OIG recommended that HUD require the City 

to (1) stop incurring costs for NSP-funded 

multifamily rehabilitation projects until HUD 

determines whether the City has the capacity 

to carry out these activities in compliance with 

HUD rules and regulations; (2) support or repay 

from non-Federal funds expenditures totaling 

$6.16 million; (3) reimburse HUD more than 

$140,000 from non-Federal funds for ineligible 

actual loss charges related to the theft and 

vandalism of air conditioners; (4) reimburse the 

City’s NSP2 grant from non-Federal funds nearly 

$391,000 for ineligible costs; and (5) develop and 

implement policies and procedures to ensure 

that HUD-funded projects and construction 

contracts are managed according to HUD rules 

and regulations and adequately monitored and 

grant charges comply with Federal cost eligibility 

requirements. OIG also recommended that 

HUD determine legal sufficiency and if legally 

sufficient, pursue civil remedies against the City, 

its principals, its contractor, or all of the above 

for incorrectly certifying to the integrity of the 

data or that due diligence was exercised during 

the approval of rehabilitation payments. (Audit 

Report: 2012-LA-1008)

Investigation

Former Housing Authority 

Employee Sentenced for 

Stealing ARRA Funds

A Sokaogon Chippewa Community Housing 

Department employee and former community 

planner who administered HUD Indian Housing 

Block Grant funds was sentenced following a 

bench trial in which she was found guilty of 

theft of government funds. The defendant was 

sentenced to 15 months incarceration and 36 

months supervised release and was ordered to 

pay a $5,000 fine and $13,054 in restitution to 

HUD. Between December 2009 and January 

2010, the defendant diverted and personally used 

$13,054 in ARRA funds to purchase a number 

of high-end appliances, including a refrigerator, 

a stove, an oven, a dishwasher, a microwave, a 

washer, and a dryer. (Milwaukee, WI)
25 Chapter 6 - Disaster Relief Programs 

In response to disasters, Congress may 

appropriate additional funding as Disaster 

Recovery Assistance grants to rebuild the 

affected areas and provide crucial seed money to 

start the recovery process.

Over the past several years, disaster funding for 

the U.S. Department of Housing and Urban 

Development (HUD) has exceeded $30 billion, 

from which HUD provides flexible grants to 

help cities, counties, and States recover from 

presidentially declared disasters. These active 

disaster grants nationwide have approximately 

$27 billion in obligations and $21.8 billion 

in disbursements, with $8.2 billion yet to be 

expended. Of the total $30 billion in current 

HUD disaster funds, $19.6 billion was provided 

for Hurricanes Katrina, Rita, and Wilma. 

Regarding the $19.6 billion in funds provided 

to Gulf Coast States, $17.2 billion, or 87.6

percent of the funds, had been disbursed as of 

September 30, 2012.

Keeping up with communities in the recovery 

process can be a challenging position for 

HUD. The HUD Office of Inspector General 

(OIG) continues to take steps to ensure that 

the Department remains diligent in assisting 

communities with their recovery efforts.

Strategic Initiative 3: Contribute to the 

strengthening of communities 

Audit

Program results

Audit

2 audits7

Questioned costs $159,000

Funds put to better use $2,000 7

7

The disaster grant program audits are community planning 

and development audits. The questioned costs and funds 

put to better use amounts relate to only disaster-related 

costs.

HUD OIG audited the Lower Manhattan 

Development Corporation (LMDC) in New 

York, NY, regarding its administration of the 

$2.783 billion in Community Development 

Block Grant (CDBG) Disaster Recovery 

Assistance funds awarded to the State of New 

York in the aftermath of the September 11, 

2011, terrorist attacks on the World Trade 

Center in New York City. The objective of 

this audit was to determine whether LMDC 

officials disbursed CDBG Disaster Recovery 

Assistance funds in accordance with the 

guidelines established under the HUD-approved 

partial action plans for the Chinatown Clean 

Streets and the New York Stock Exchange

Security and Streetscape programs.

LMDC officials generally disbursed the funds 

reviewed in accordance with the guidelines 

established under the HUD-approved partial 

action plans. However, officials approved 

invoices for reimbursement that were not always 

consistent with the terms of the subrecipient 

agreements and all applicable requirements.

OIG recommended that HUD direct LMDC 

officials to (1) strengthen controls over 

the invoice approval process; (2) recoup, 

through offsets of future reimbursements, 

nearly $108,000 in ineligible and more than 

$13,000 in unreasonable costs reimbursed 

under the Chinatown Clean Streets program; 

and (3) recover, through offsets of future 

reimbursements, more than $4,000 in ineligible 

costs and provide supporting documentation for 

more than $34,000 in costs reimbursed under 

the New York Stock Exchange Security and

Streetscape program. (Audit Report: 

2012-NY-1010)

Chapter 6

Disaster Relief Programs 
Chapter 6 - Disaster Relief Programs 26

Investigation

Former CDBG Grant 

Administrator Found 

Guilty After Jury Trial

The former CDBG grant administrator of 

a large metropolitan city was found guilty, 

following a jury trial, of conspiracy and theft 

of Federal funds and conspiracy for impeding 

or obstructing a Federal audit. The defendant 

conspired with others to illegally convey and sell 

a parcel of land. The land was owned by one 

of the coconspirators and was purchased by the 

city she worked for using Federal Emergency

Management Agency disaster funds. The 

defendant concealed the fact that the HUD 

CDBG Disaster Assistance grant program was 

not administered in accordance with the grant 

agreement and convinced HUD OIG auditors 

that the city complied with the grant agreement. 

During a 2010 HUD OIG audit, the defendant 

instructed her staff to alter or omit documents 

that documented a duplication of benefits and 

transmitted the fraudulent information via 

email to HUD OIG auditors. An individual who 

worked for the defendant entered into a pretrial 

diversion agreement with the government as a 

result of this investigation. The city was awarded 

an aggregate amount of $37.6 million in CDBG 

funds for recovery efforts in the aftermath of 

Hurricane Katrina. This case was worked jointly 

with the Federal Bureau of Investigation (FBI) 

and the Alabama Attorney General’s Office. 

(Mobile, AL)

Contractor Pleads Guilty 

in Overbilling Scheme

A contractor with the New Orleans Affordable 

Homeownership Program (NOAH) pled guilty 

to conspiracy. The defendant, along with others, 

conspired to steal CDBG grant funds provided to 

NOAH that were designated to be used to repair 

homes damaged by Hurricane Katrina. The 

scheme involved overbilling for charges related to 

the rehabilitation work. This investigation was 

conducted by HUD OIG, the FBI, and the New 

Orleans Inspector General. (New Orleans, LA)
27 Chapter 7 - Other Significant Audits and Investigations and the OIG Hotline 

Strategic Initiative 4:

Contribute to improving HUD’s 

execution of and accountability for fiscal 

responsibilities as a relevant and problemsolving advisor to the Department

Audit

Program results

Audit

18 audits8

Questioned costs $807.3 million*

Funds put to better use $14.8 million

8

*A portion of the program results and related costs 

(questioned costs - $485,363,750 and funds put to better 

use - $5 million) was the result of work performed jointly 

with the Office of Investigation.

Bank of America Settled Alleged 

Violations of the False Claims Act 

by Countrywide Home Loans, Inc.

HUD OIG conducted a review of loans 

underwritten by Countrywide Home Loans, 

Inc., and its divisions Countrywide Bank, FSB, 

and Countrywide Mortgage Ventures, LLC, to 

determine whether Countrywide underwrote 

Federal Housing Administration (FHA) loans in 

accordance with FHA regulations.

Countrywide is a subsidiary of Bank of 

America, Charlotte, NC. Bank of America 

acquired Countrywide on January 11, 2008. 

Countrywide’s FHA approval was voluntarily 

terminated on September 2, 2010. To address 

8

The total “other” audits, questioned costs, and funds put 

to better use amounts include any American Recovery 

and Reinvestment Act of 2009 (two audits) type audits 

conducted in the “other” area. The writeups for these 

audits are shown separately in chapter 5 of this semiannual 

report.

the review objective, OIG reviewed 110 

statistically selected loans from a universe of 

8,724 FHA-insured loans, which Countrywide 

and two of its related entities closed between 

January 1, 2003, and December 31, 2009, and 

that met specific loan default criteria. OIG 

referred its findings to the U.S. Attorney’s Office 

of the Eastern District of New York. Bank of

America and its affiliated entities entered into a 

settlement agreement with the U.S. Department 

of Justice (DOJ). The consent judgment stated 

that the parties agreed to resolve their claims 

without the need for litigation and that Bank 

of America did not admit the allegations of 

the complaint other than those facts deemed 

necessary to the jurisdiction of the court. On 

April 4, 2012, the U.S. District Judge for the 

District of Columbia approved the consent 

judgment, which was based in large part on 

OIG’s review of the 110 statistically selected

FHA loans. As a result, Bank of America 

paid FHA nearly $471 million to settle the 

Countrywide portion of the consent judgment.

Bank of America and its affiliated entities 

also agreed to a deferred settlement payment 

to FHA of $850 million. The $850 million is 

deferred for 3 years from the effective date of 

the consent judgment to allow Bank of America 

to conduct a one-time, nationwide modification 

program to be offered to underwater borrowers 

with economic hardship on first-lien loans.

Bank of America will have no obligation to 

make the $850 million deferred settlement 

payment to FHA if it satisfactorily completes the 

stipulations of the modification program. (Audit 

Memorandum: 2012-CF-1809)

Deutsche Bank Settled Alleged 

Violations of the False Claims 

Act by MortgageIT, Inc.

HUD OIG, assisted the U.S. Attorney’s Office, 

Southern District of New York, in conducting 

Chapter 7

Other Significant Audits and Investigations and the OIG Hotline 
Chapter 7 - Other Significant Audits and Investigations and the OIG Hotline 28

a review of MortgageIT, Inc., headquartered in 

New York, NY. The objective of the review was 

to determine whether the MortgageIT loans 

reviewed were underwritten in violation of FHA 

regulations.

OIG reviewed 21 FHA loans and other 

documentation. On May 3, 2011, the U.S. 

Attorney’s Office commenced a civil action 

against Deutsche Bank and MortgageIT under 

the False Claims Act and the common law.

On May 10, 2012, Deutsche Bank and related 

entities agreed to settle the complaint and pay 

$202.3 million to the United States to resolve 

the Federal Government’s claims for damages 

and penalties under the False Claims Act. Of 

that amount, FHA was to receive approximately 

$196 million. As part of the settlement, 

MortgageIT admitted, acknowledged, and 

accepted responsibility for various conduct, 

including failing to conform fully with FHA 

rules for maintaining a quality control program 

and conducting reviews of all early payment 

defaults on loans endorsed for FHA insurance.

It also agreed that it did not conform to all 

applicable FHA regulations from 1999 through 

2009. MortgageIT further agreed that it falsely 

certified to FHA that certain loans were eligible 

for FHA mortgage insurance, and HUD incurred 

losses when some of those loans defaulted.

Deutsche Bank admitted, acknowledged, and 

accepted responsibility for the fact that after 

MortgageIT became a wholly owned, indirect 

subsidiary of Deutsche Bank in January 2007, 

Deutsche Bank defendants were in a position 

to know that the operations of MortgageIT did 

not conform fully to all of FHA’s regulations, 

policies, and handbooks. It also agreed that one 

or more of the annual certifications made to 

FHA falsely stated that MortgageIT conformed 

to all applicable FHA regulations. (Audit 

Memorandum: 2012-CF-1811)

CitiMortgage, Inc., Settled 

Allegations of Failing To 

Fully Comply With FHA 

Requirements and Submitting 

False Certifications to 

HUD on FHA Loans

HUD OIG assisted the U.S. Attorney’s Office, 

Southern District of New York, in conducting 

a review of CitiMortgage, Inc. CitiMortgage 

is a direct subsidiary of Citibank, N.A., and 

Citibank is an indirect subsidiary of Citigroup.

CitiMortgage is based in O’Fallon, MO. The 

review began due to a qui tam filing in the U.S. 

District Court for the Southern District of New 

York.

CitiMortgage has participated in the FHA direct 

endorsement lender program since 1981. The 

direct endorsement lender program authorizes 

private-sector mortgage lenders to approve 

mortgage loans for insurance by FHA. Lenders 

approved for the program must follow various 

FHA requirements and provide annual and per 

loan certifications that the lender complies with 

these requirements when underwriting and 

approving loans for FHA insurance.

In 2011, the qui tam relator filed a complaint 

alleging, among other things, that CitiMortgage, 

Citibank, and Citigroup violated the False 

Claims Act, 31 U.S.C. (United States Code) 

3729 et seq., in connection with CitiMortgage’s 

participation in the direct endorsement 

lender program. The complaint alleged that 

CitiMortgage, Citibank, and Citigroup caused 

the United States or its departments or agents 

to insure mortgages originated by these entities, 

based on the entities’ false statements that these 

loans were consistent with applicable regulations 

and rules regarding the quality of the mortgages 

or loans. On or about February 13, 2012, the 

U.S. Attorney’s Office intervened (joined the 

relator’s case on behalf of HUD) in the civil 

action against these entities. On February 15, 

2012, CitiMortgage, Citibank, and Citigroup 

agreed to settle the complaint by paying the 
29 Chapter 7 - Other Significant Audits and Investigations and the OIG Hotline 

Federal Government and relator $158.3 million.

The settlement payment included the portion 

payable to DOJ and the relator for bringing the 

lawsuit, and the remainder of the more than 

$122.8 million was paid to the FHA insurance 

fund. (Audit Memorandum: 2012-CF-1814)

Flagstar Bank, FSB, Settled 

False Claims Act Allegations of 

Submitting False Certifications 

to HUD on FHA Loans

HUD OIG assisted the U.S. Attorney’s Office, 

Southern District of New York, in conducting 

a review of Flagstar Bank, FSB, to determine 

whether Flagstar conducted its operations in the 

underwriting of FHA loans in accordance with 

FHA regulations.

Flagstar Bank is a supervised direct endorsement 

lender headquartered in Troy, MI. Since 1988, 

Flagstar has been a participant in the direct 

endorsement lender program.

Flagstar did not conduct its operations in 

the underwriting of FHA loans in accordance 

with FHA regulations. On February 24, 2012, 

Flagstar admitted, acknowledged, and accepted 

responsibility for submitting false certifications 

to HUD about the eligibility of its loans for 

FHA insurance. In a settlement reached with 

the U.S. Attorney’s Office, the lender agreed 

to pay $132.8 million to the United States in 

damages and penalties under the False Claims 

Act and to reform its business practices. Flagstar 

admitted that during the period January 1, 2002, 

to February 24, 2012, it delegated underwriting 

decisions to unauthorized staff. The lender also 

admitted that it underwrote and approved for 

FHA insurance loans that did not comply with 

certain FHA underwriting requirements, and 

HUD paid insurance claims on these ineligible 

loans. Further, the U.S. Attorney’s Office 

announced that Flagstar set daily quotas for its 

HUD-approved underwriters and underwriting 

assistants and paid these employees substantial 

incentive awards for exceeding daily quotas. 

(Audit Memorandum: 2012-CF-1810)

Settlement of Alleged Violations 

of the Financial Institutions 

Reform, Recovery, and 

Enforcement Act of 1989

HUD OIG conducted a civil fraud review of 

an alleged foreclosure rescue scheme in Seal 

Beach, CA. The alleged scheme involved more 

than 100 properties in three States that were 

financed through FHA and conventional loans 

and allegedly defrauded distressed homeowners, 

renters, and lenders. Based on OIG’s work, the 

U.S. Attorney’s Office of the Central District of 

California filed a complaint in June 2011. The 

complaint alleged that the complainant 

perpetrated a fraudulent scheme that involved 

mail fraud, bank fraud, and false statements 

affecting financial institutions, which violated 

the Financial Institutions Reform, Recovery, 

and Enforcement Act of 1989.On July 20,

2012, the complainant entered into a settlement 

agreement with DOJ and agreed to pay a $5 

million civil penalty judgment. He also agreed to 

other stipulations, including but not limited to 

being prohibited from participating in the home 

finance or real estate industries and being barred 

from filing bankruptcy petitions on behalf of 

himself or any other person or entity, both for a 

period of 10 years or until such time as the civil 

penalty judgment is satisfied by full payment.

In agreeing to the settlement, the complainant 

did not admit to liability or fault. The 

settlement agreement was accepted by the 

court and filed on July 31, 2012. (Audit 

Memorandum: 2012-CF-1813)
Chapter 7 - Other Significant Audits and Investigations and the OIG Hotline 30

Bartlesville Health Care Center, 

Inc., Owners and Lender 

Settled Alleged Violations 

of the False Claims Act

HUD OIG audited three related nursing facilities 

in Bartlesville, OK: Bartlesville Health Care 

Center, Inc., doing business as Silver Lake Care 

Center; Mannford Health Care Center, Inc., 

doing business as Cimarron Pointe Care Center; 

and Owasso Nursing Center, Inc., doing business 

as Sequoyah Pointe Living Center. The audit 

objective was to determine whether the owners 

of Bartlesville, Mannford, and Owasso and the 

multifamily accelerated processing lender, Harry 

Mortgage, followed HUD requirements when 

refinancing the nursing facilities’ mortgages.

Less than 1 year before the FHA-insured 

refinance, Bartlesville obtained a non-FHAinsured second mortgage to pay its owners 

$2.6 million. Harry Mortgage should not 

have recommended to HUD that FHA insure 

this mortgage. The FHA-insured refinance 

mortgage inappropriately increased the risk to 

FHA’s insurance fund, and the owners received 

nearly $2.6 million when they refinanced the 

nursing home with FHA insurance. Due to the 

seriousness of the findings, OIG referred the 

matter to DOJ through HUD’s Associate General 

Counsel of Program Enforcement.

Through a civil settlement, the government 

will receive more than $5.3 million from the 

owners and lender. HUD will receive more 

than $2.6 million, the amount it lost on the sale 

of the note, and the U.S. Department of the 

Treasury will receive nearly $2.7 million. (Audit 

Memorandum: 2012-FW-1805)

Evaluation of HUD’s 

Conference Spending

In response to a congressional request, HUD 

OIG compiled information from audits and 

investigative activities it performed that 

included findings or allegations regarding HUD’s 

conference spending and related travel. 

OIG performed 34 such reviews between 

October 1995 and January 2012. Its audit reports 

disclosed immaterial instances of unsupported, 

ineligible, or unnecessary travel expenses by 

HUD employees or personnel of entities that 

administered HUD funds. HUD has addressed 

the recommendations associated with these 

reports to OIG’s satisfaction, and all are closed. 

The allegations reviewed were either unfounded 

or resulted only in administrative actions. 

Therefore, OIG made no recommendations. 

(Inspections and Evaluations: 2012-IE-0801)

Investigation

In addition to investigating fraud and thefts 

against the major HUD programs, the HUD OIG 

Office of Investigation pursues investigations of 

other crimes against HUD programs, including 

the theft of funds from the Government 

National Mortgage Association. HUD OIG 

is taking a proactive role to combat consumer 

fraud, including mortgage loan origination 

and foreclosure rescue scams. Many of these 

investigations are conducted jointly with the 

Federal Bureau of Investigation and other 

Federal, State, and local law enforcement 

partners.

Program results Investigations

Administrative-civil actions 8

Convictions-pleaspretrial diversions 1

Financial recoveries $11,200

OIG Hotline

The HUD OIG hotline is operational 5 days a 

week, Monday through Friday, from 10:00 a.m. to 

6:00 p.m. Eastern Standard Time. The hotline

is staffed by 10 full-time OIG employees, who 

take allegations of waste, fraud, abuse, or serious 
31 Chapter 7 - Other Significant Audits and Investigations and the OIG Hotline 

mismanagement in HUD or HUD-funded 

programs from HUD employees, contractors, and 

the general public. The hotline also coordinates 

reviews of allegations with internal audit and 

investigative units or with HUD program offices.

During this reporting period, the hotline received 

and processed 4,616 contacts – 81 percent 

received by telephone, 11 percent by email, 

and 7 percent by mail and fax. Every allegation

determined to be related to the OIG mission is 

logged into the hotline database and tracked.

Of the contacts received, 387 (8 percent) 

were related to the mission of OIG and were 

addressed as hotline case referrals. Hotline cases 

are referred to the OIG Offices of Audit and 

Investigation or to responsible HUD program 

offices for action and response. The following 

illustration shows the distribution of hotline 

cases and noncase referrals by percentage.

The hotline closed 148 cases this reporting 

period. The closed hotline cases included 33 

substantiated allegations. The Department 

took corrective actions that resulted in $172,288 

in recoveries of losses and $623,886 in HUD 

funding that could be put to better use. The 

recoveries included repayments of overpaid 

rental subsidies. Some of the funds that could 

be put to better use were the result of cases in 

which tenants were terminated from public 

housing or multifamily housing programs for 

improperly reporting their incomes or family 

composition to qualify for rental assistance. 
Chapter 8 - Legislation, Regulation, and Other Directives 32

Reviewing and making recommendations on 

legislation, regulations, and policy issues is a 

critical part of the Office of Inspector General’s 

(OIG) responsibilities under the Inspector 

General Act. During this 6-month reporting 

period, OIG has committed approximately 

573 hours to reviewing 131 issuances.9

 The 

draft directives consisted of 18 notices of 

funding availability, 77 mortgagee letters 

and notices, and 36 other directives. OIG 

provided comments on 29 percent (38 of the 

131 reviewed) of these draft directives. 

Notices and Policy Issuances

Single-Family Housing

During this 6-month period, OIG reviewed 

and commented on various departmental 

clearance items affecting the Federal Housing 

Administration’s (FHA) single-family programs. 

A selection of what was reviewed is summarized 

below. 

HECM program - In response to our audit report

2010-FW-0003, issued August 25, 2010, HUD 

sent through departmental clearance a proposed 

rule addressing requirements related to the 

mortgagors’ obligations and payment of property 

charges and the processes for mortgagors and 

mortgagees to follow when the mortgagors fail 

to comply with the obligations under the terms 

of the Home Equity Conversion Mortgage

(HECM) program. The proposed rule would

also cap the amount of insurance benefits 

paid in connection with a claim involving 

amounts advanced by the mortgagee for those 

9

Issuances require internal clearance through OIG. 

Issuances include documents such as handbooks, mortgagee 

letters, and notices. Issuances generally supplement 

existing regulatory or statutory requirements that pertain 

to HUD programs or operations. Issuances also include 

Federal Register publications that introduce new or revised 

rules and policies prescribed by statutes or executive 

order.

instances in which HECM mortgagors fail to

pay property charges after the available HECM

proceeds have been exhausted and enhance 

clarity concerning when HECMs are “due and

payable” by establishing specific timeframes for 

“due and payable” notifications and revising the 

“due date” for purposes of computing HECM

insurance claims. In addition, the proposed 

rule would establish a new property inspection 

requirement to ensure that a property that is the 

security for a HECM is adequately maintained

and meets applicable property standards. While 

OIG is encouraged by the proposed regulation 

changes governing the HECM program and

believes it will positively strengthen program 

weaknesses, OIG did express concerns regarding 

(1) ensuring that property taxes are current at 

the time of loan closing, (2) requiring that a 

set-aside of funding be a requirement of funding 

versus an option to handle payment of taxes and 

insurance, (3) whether a 2-year cap on insurance 

benefits for advances on property charges is too 

long, and (4) how often property inspections 

should be performed. 

Risk management - As part of HUD’s efforts 

to strengthen the risk management practices 

of FHA, HUD published a final rule in 2010, 

revising its regulations pertaining to the FHA 

approval of mortgage lenders. That final rule 

increased the net worth requirement for FHAapproved lenders and mortgagees, eliminated 

HUD’s approval of loan correspondents, and 

amended the general standards for lenders and 

mortgagees. However, on August 24, 2012, 

HUD published a final rule that made several 

clarifications and corrections to the provisions of 

the prior final rule. Specifically, the August 2012 

final rule

•	 Clarified liquidity requirements for FHAapproved lenders and mortgagees. FHAapproved non-small business lenders 

and mortgagees were required to have a 

minimum net worth of $1 million, of which 

20 percent must be liquid assets consisting 

Chapter 8

Legislation, Regulation, and Other Directives 
33 Chapter 8 - Legislation, Regulation, and Other Directives 

of cash or its equivalent acceptable to the 

HUD Secretary. The 20 percent intent of the 

liquidity requirement applies solely to the 

required minimum net worth instead of a 

lender’s net worth. 

•	 Clarified the definition of a sponsored thirdparty originator and that a sponsored thirdparty originator may hold a Title I contract 

of insurance or Title II origination approval 

agreement if it is also an FHA-approved 

lender or mortgagee.

•	 Removed references to loan correspondents, 

loan originators, and other outdated terms 

and when appropriate, replaced those terms 

with “sponsored third-party originator.”

Loss mitigation – OIG reviewed a proposed 

mortgagee letter concerning loss mitigation 

expectations required of servicers. Some of the 

topics covered included (1) timely notification to 

borrowers after review, (2) timing of foreclosure 

initiation, (3) loss mitigation options during 

the foreclosure process, (4) extensions of time 

for loss mitigation during foreclosure, and (5) 

terminating foreclosure proceedings. OIG also 

reviewed another proposed mortgagee letter 

establishing new requirements for FHA’s loss 

mitigation home retention options in an effort 

to help reduce the number of full claims against 

the FHA insurance fund by assisting a greater 

number of qualified, distressed mortgagors with 

staying in their homes. 

Financial reporting – In the prior reporting 

period, OIG reviewed a proposed rule that 

would streamline the FHA financial statement 

reporting requirements for lenders and 

mortgagees that are supervised by a Federal 

banking agency and the consolidated assets 

of which do not meet the threshold set by 

their supervising Federal banking agency for 

submission of audited financial statements 

(currently set at $500 million in consolidated 

assets). OIG had nonconcurred on this 

original proposed rule due to concerns with 

HUD’s removing an important control in 

the FHA process to monitor its approved 

lenders and mortgagees. OIG met with HUD 

during this 6-month period and discussed its 

concerns. HUD agreed to revise language in 

the proposed rule to address OIG’s concerns. 

HUD resubmitted the proposed rule during 

this 6-month period with changes that 

addressed OIG’s concerns, and OIG lifted the 

nonconcurrence. HUD has not yet published 

the final rule, which will have an impact only on 

the requirements for submitting annual financial 

statements by small supervised lenders and 

mortgagees. 

Office of Healthcare Programs

The Office of Healthcare Programs submitted 

a final rule to implement regulatory changes 

regarding how operators of healthcare facilities 

treat project income. The rule is in response to 

an audit report issued in 2002 (2002-KC-0002). 

The changes were needed to ensure that program 

requirements are sufficient to meet increased 

demand and prevent mortgage defaults that not 

only impose a risk to the FHA insurance fund, 

but can also jeopardize the safety and stability of 

healthcare facilities and their residents. Changes 

were also made to the physical inspection 

requirements and mortgage insurance contract 

requirements.

Public and Indian Housing

Rental Assistance Demonstration Program – 

The notice responds to comments received 

and provides instructions for the full program, 

including eligibility and selection criteria. OIG 

commented that the front-end risk assessment 

should be completed before implementation. 

During this reporting period, the Office of Public 

and Indian Housing (PIH) issued a notice for the 

full implementation of the program; however, a 

front-end risk assessment was not started until 

June 2012 and has yet to be completed.
Chapter 8 - Legislation, Regulation, and Other Directives 34

Community Planning 

and Development

HOME - Congress mandated changes to the

HOME Investment Partnerships Program

(HOME) in the Consolidated and Further

Continuing Appropriations Act of 2012. The Act 

requires participating jurisdictions to (1) repay 

HOME funds invested in projects that are not

completed within 4 years of the commitment 

date unless a waiver is given by HUD, (2) 

commit fiscal year (FY) 2012 HOME funds only

when a project has been properly underwritten 

and market conditions examined to ensure that 

there is adequate need for the HOME project,

(3) convert any FY 2012 home ownership units 

to HOME-assisted rental units if they are not

sold within 6 months, and (4) provide FY 2012 

HOME funds only to community housing

development organizations that have shown that 

they have staff with demonstrated development 

experience. On May 8, 2012, HUD issued Notice 

CPD 12-007 to implement changes required by 

the Act.

 

However, HUD previously proposed other 

significant changes to the Office of Community 

Planning and Development’s HOME program

regulations. HUD OIG generally agreed 

with the proposed changes but included 

additional changes, which HUD OIG believes 

will strengthen the program. These proposed 

changes had not become final as of September 

30, 2012. Although there are similarities 

between the law mandated by Congress and 

the regulatory changes proposed by HUD, the 

Act required HUD to immediately implement 

the congressional requirements on all FY 2012 

HOME-funded activities.
35 Chapter 9 - Audit Resolution 

In the audit resolution process, Office of 

Inspector General (OIG) and U.S. Department 

of Housing and Urban Development 

(HUD) management agree upon the needed 

actions and timeframes for resolving audit 

recommendations. Through this process, OIG 

hopes to achieve measurable improvements in 

HUD programs and operations. The overall 

responsibility for ensuring that the agreedupon changes are implemented rests with HUD 

managers. This chapter describes significant 

management decisions with which OIG 

disagrees. It also contains a status report on 

HUD’s implementation of the Federal Financial 

Management Improvement Act of 1996 

(FFMIA). In addition to this chapter on audit 

resolution, see appendix 3, table B, “Significant 

audit reports in which final action had not been 

completed within 12 months after the date of 

the Inspector General’s report.”

Audit Reports Issued Before 

Start of Period With No 

Management Decision as 

of September 30, 2012

HUD Lacked Adequate 

Controls To Ensure the Timely 

Commitment and Expenditure 

of HOME Funds, Issue 

Date: September 28, 2009

HUD OIG audited HUD’s HOME Investment

Partnerships Program (HOME).The OIG

report included a recommendation that the 

HUD Office of Community Planning and 

Development (CPD) establish and implement 

controls to ensure that field offices require 

participating jurisdictions to close out future 

HOME activities within a timeframe that will

permit reallocation and use of the funds for 

eligible activities in time to avoid losing them to 

recapture by the U.S. Treasury under provisions 

of Public Law 101-510.

OIG rejected two management decisions 

proposed by CPD to address the 

recommendation because they did not provide 

for the establishment and implementation of 

all of the controls that are needed to address 

the recommendation. CPD has not responded 

to our follow-up regarding the need for a 

management decision for this recommendation.

OIG also recommended that CPD obtain a 

formal legal opinion from HUD’s Office of 

General Counsel regarding whether HUD’s 

cumulative technique for assessing compliance 

with commitment deadlines is consistent with 

and an allowable alternative to the 24-month 

commitment required by 42 U.S.C. (United 

States Code) 12748 and HUD’s first-in, first-out 

(FIFO) method for assessing compliance with 

HOME expenditure requirements is consistent

with and an allowable alternative to the 8-year 

recapture deadline pursuant to Public Law 101-

510, codified at 31 U.S.C. 1552.

CPD obtained a legal opinion from the Assistant 

General Counsel for Community Development 

on March 5, 2010. The legal opinion supports 

the Department’s use of the cumulative 

approach and FIFO accounting method.

Based on this legal opinion, CPD does not 

plan to implement OIG’s recommendation to 

discontinue use of the FIFO method to account 

for the commitment and expenditure of HOME

funds or the cumulative technique for assessing 

deadline compliance.

OIG requested reconsideration of the opinion.

On June 10, 2010, HUD’s General Counsel and 

Chief Financial Officer provided additional 

information regarding HUD’s recapture 

requirements of the HOME program statute and

CPD’s use of cumulative accounting and the 

FIFO method for financial management.

Chapter 9

Audit Resolution 
Chapter 9 - Audit Resolution 36

HUD explained that CPD’s use of cumulative 

accounting in its financial management 

represents a reasonable interpretation of the 

statutory duties imposed on the HUD Secretary 

and addresses the complex administrative 

challenges inherent in managing the HOME

Investment Trust. HUD also explained 

that obligations and expenditures under the 

HOME program are accounted for on a FIFO

basis by fund type instead of by fiscal year 

and that CPD, in enforcing the obligation 

and expenditure requirements, looks to total 

cumulative obligations and expenditures instead 

of accounting for them by fiscal year. Based on 

the Chief Financial Officer’s financial analysis, 

given the origin of these requirements and the 

fundamental nature of this block grant program, 

HUD believed that the FIFO accounting 

method for obligations and expenditures by fund 

type was consistent with Federal accounting 

requirements and had no objection to the 

total cumulative obligations and expenditures 

methods used for assessing compliance with the 

24-month commitment and 5-year expenditure 

requirements.

OIG continues to disagree with CPD’s use of 

the FIFO method for recognizing commitments 

and expenditures that participating jurisdictions 

make against their HOME appropriations and

maintains that CPD’s cumulative method for 

determining recapture amounts is not consistent 

with the requirement cited at 42 U.S.C. 12748 

for recapturing funds not committed by statutory 

deadline dates. The FIFO accounting method 

understates amounts due to be recaptured by 

the Treasury when appropriation accounts are 

canceled pursuant to 31 U.S.C. 1552. The 

cumulative method potentially understates 

recaptures that HUD makes pursuant to 42 

U.S.C. 12748. 

Another issue is whether HUD’s FIFO 

accounting method complies with Federal 

accounting requirements for maintaining the 

U.S. Standard General Ledger and general 

appropriations law. The accounting issues 

require review for compliance with Federal 

accounting standards and appropriation law.

Since OIG’s last semiannual report date, in 

conjunction with its annual audit of HUD’s 

financial statements, OIG has continued to 

discuss the FIFO accounting method with the 

U.S. Government Accountability Office (GAO) 

and is waiting for GAO to determine whether 

the FIFO accounting method violates Federal 

standards for appropriation accounting and 

whether the cumulative method is an acceptable 

alternative to the statutory recapture provision.

(Audit Report: 2009-AT-0001) 

Significantly Revised 

Management Decisions

Section 5(a)(11) of the Inspector General 

Act, as amended, requires that OIG report 

information concerning the reasons for any 

significant revised management decisions made 

during the reporting period. During the current 

reporting period, there were significant revised 

management decisions on four audits.

HUD Lacked Adequate 

Controls Over the Physical 

Condition of Section 8 Voucher 

Program Housing Stock, 

Issue Date: May 14, 2008

HUD OIG audited HUD’s controls over the 

physical condition of Section 8 housing stock for 

the Housing Choice Voucher program. OIG’s 

objective was to determine whether HUD had 

adequate controls to ensure that its Section 8 

housing stock was in material compliance with 

housing quality standards.

HUD did not have adequate controls to ensure 

that its Section 8 housing stock was in material 

compliance with housing quality standards. 

This condition occurred because HUD had not 

fully implemented its Section 8 Management 

Assessment Program (SEMAP). As a result, it

could not ensure that the primary mission of the 

Section 8 program, paying rental subsidies so 
37 Chapter 9 - Audit Resolution 

that eligible families can afford decent, safe, and 

sanitary housing, was met. In addition, HUD’s 

lack of knowledge regarding the condition of 

its Section 8 housing stock resulted in inflated 

performance ratings for public housing agencies 

administering the program. Consequently, 

HUD routinely rated some agencies as being 

high performers when a significant percentage 

of the units they administered were in material 

noncompliance with housing quality standards. 

HUD was revising its Section 8 regulations. 

These revisions included developing a physical 

inspection system to help ensure that HUD’s 

Section 8 housing stock is in material compliance 

with housing quality standards.

Our recommendations included completion 

of the departmental clearance process of the 

proposed revised Section 8 regulations by the end 

of fiscal year (FY) 2008, allowing the proposed 

revisions to SEMAP and housing quality

standards to go through the proper process and 

carefully considering all questions and comments 

made by the affected parties (HUD Office 

of Public and Indian Housing staff, tenants, 

landlords, Real Estate Assessment Center, HUD

OIG, etc.) before publishing the final rule, and 

fully developing and implementing a physical 

inspection system for the tenant-based Housing 

Choice Voucher program within 3 years of the 

issue date of this report.

In its original management decision, HUD 

agreed to publish the final rule and to develop 

and implement a new physical inspection system 

by October 31, 2010. Due to various delays, 

HUD requested and OIG agreed to extend 

the target completion date to September 30, 

2012. In September 2012, HUD revised its 

management decisions. HUD has embarked 

on a major initiative to overhaul and improve 

its information system through the Next 

Generation Management System and plans to 

delay development and implementation of a 

new SEMAP rule. HUD recognizes that the lack

of an independent assessment of the quality of 

assisted units is a major flaw within SEMAP and

that HUD needs to take action to address this 

concern. HUD intends to perform up to 10,000 

quality control inspections at up to 100 of the 

largest public housing agencies during 2013 and 

complete follow-up and administrative action 

by October 31, 2014. (Audit Report: 2008-AT0003)

The City of East St. Louis Did 

Not Properly Allocate Salary and 

Building Expenses or Properly 

Document Its Process To Secure 

a Consulting Services Contract, 

Issue Date: March 26, 2010

HUD OIG audited the City of East St. Louis’

Community Development Block Grant (CDBG) 

program to determine whether the City 

properly expended block grant funds for salaries 

and building expenses and followed proper 

procurement processes while awarding significant 

administration contracts.

The City did not properly allocate salary and 

building expenses to the CDBG program. It also 

did not properly document the cost estimate and 

selection process used to procure a contract for 

developing its 5-year consolidated plan.

Among other things, OIG recommended that 

HUD provide technical assistance to the City 

to ensure that its management and staff comply 

with Office of Management and Budget (OMB) 

Circular A-87 requirements for rental costs. In 

its original management decision, HUD agreed 

to provide the City with technical assistance.

HUD submitted a revised management decision 

because it had transferred full administrative 

responsibility for the grant program to St. Clair 

County, IL, and the old recommendations 

were no longer necessary. Beginning in FY 

2012, the City has become a member of the St. 

Clair County Urban County and will not have 

a CDBG program to administer. On July 30, 

2012, OIG agreed with the revised significant 

management decision. (Audit Report: 2010-

KC-1003)
Chapter 9 - Audit Resolution 38

The City of East St. Louis, IL, Did 

Not Properly Manage Housing 

Rehabilitation Contracts Funded 

by the Community Development 

Block Grant Program, Issue 

Date: February 9, 2011

HUD OIG audited the City of East St. Louis’

CDBG program to determine whether the City 

properly managed its housing rehabilitation 

contracts.

The City awarded more than $1 million in 

grant funds for 124 of the 147 rehabilitation 

contracts reviewed without adequately ensuring 

that it complied with requirements and that the 

work was completed in an acceptable manner.

Specifically, it did not ensure that contractors 

completed all of the contracted work as required 

and at a reasonable cost. Additionally, the City 

created scopes of work for the rehabilitation 

contracts that were not detailed and specific 

in nature. Finally, it did not comply with 

Federal procurement requirements and its own 

policies and procedures when it managed the 

rehabilitation contracts.

Among other things, OIG recommended 

that HUD require the City to obtain detailed 

inspection reports with pictures of completed 

repairs to ensure that all work items are properly 

completed according to the approved scopes 

of work before the contractors are paid. OIG 

also recommended that the City develop and 

implement a postrepair quality control process 

to ensure that work is completed according to 

the scope. In its original management decision, 

HUD agreed to require the City to implement 

adequate internal controls. HUD submitted 

a revised management decision because it had 

transferred full administrative responsibility 

for the grant program to St. Clair County, IL, 

and the old recommendations were no longer 

necessary. Beginning in FY 2012, the City has 

become a member of the St. Clair County Urban 

County and will not have a CDBG program to 

administer. On July 30, 2012, OIG agreed with 

the revised significant management decision.

(Audit Report: 2011-KC-1001)

The East St. Louis, IL, Housing 

Authority Drew Capital 

Funds for Unsupported and 

Ineligible Expenses, Issue 

Date: March 1, 2011

HUD OIG audited the East St. Louis Housing

Authority’s Public Housing Capital Fund 

program to determine whether the Authority had 

proper support for its capital fund draws.

The Authority drew down grant funds for 

ineligible items and without adequate support. 

Specifically, it made unsupported draws, 

excessive administration draws, draws for force 

account labor without prior approval, draws 

above the invoiced amount, and duplicate 

draws. As a result, HUD had no assurance that 

nearly $172,000 in capital funds was properly 

spent.

Among other things, OIG recommended that 

HUD require the Authority to provide support 

for nearly $91,000 drawn for unsupported 

costs or return the funds to HUD. OIG also 

recommended that the Authority return more 

than $81,000 in ineligible draws to HUD. In 

its original management decision, HUD 

agreed to review documentation submitted by 

the Authority and require repayment to the 

project from non-Federal funds for the amount 

that could not be supported. HUD recently 

submitted a revised management decision 

because it had completed its review of the 

documentation and determined the amount 

of repayment remaining. It planned to enter 

into a 10-year repayment agreement with the 

Authority totaling more than $31,000. On July 

13, 2012, OIG agreed with the revised significant 

management decision. (Audit Report: 2011-

KC-1002)
39 Chapter 9 - Audit Resolution 

Significant Management 

Decision With Which 

OIG Disagrees

During the reporting period, there was one report 

in which the OIG disagreed with the significant 

management decision.

The Housing Authority of the City 

of Shreveport, LA, Mismanaged Its 

Recovery Act Funds by Entering 

Into Imprudent Contracts To 

Meet the Obligation Deadline, 

Issue date: October 14, 2010

HUD OIG audited the Housing Authority of 

the City of Shreveport as part of its annual 

audit plan to review American Recovery and 

Reinvestment Act of 2009 (ARRA) funds. The 

audit objective was to determine whether 

obligations the Authority made between January 

30 and March 17, 2010, were appropriate, 

prudent, eligible, and supported and whether 

procurements were made in accordance with 

requirements.

The Authority mismanaged more than $1.5 

million in ARRA funding by entering into 

imprudent contracts to meet the March 17, 

2010, obligation deadline. In addition, it could 

not provide assurance that it properly awarded 

the contracts.

Working with the New Orleans field office, OIG 

obtained management decisions for three of the 

six recommendations. However, OIG could not 

resolve the remaining three recommendations 

and referred the recommendations to HUD’s 

Deputy Assistant Secretary for Public Housing 

Investments in accordance with requirements to 

aid in the resolution. 

On March 25, 2011, HUD’s Deputy Assistant 

Secretary for Public Housing Investments 

proposed and OIG concurred with HUD, 

requesting a formal legal opinion for a

•	 Determination of whether the Authority 

could enter into a contract for the 

encapsulating paint for nearly $192,000 and 

determining whether any funds should be 

recaptured (recommendation 1A).

•	 Determination of whether the Authority’s 

submission of a revised budget 

constituted an amendment to its public 

housing authority plan and determining 

whether any funds should be recaptured 

(recommendation 1B).

HUD and OIG agreed on the management 

decision that HUD would deposit any 

recaptured funds pursuant to the outcomes of 

recommendations 1A and 1B with the Treasury 

for deficit reduction in accordance with ARRA as 

amended (recommendation 1E).

HUD obtained a legal opinion from the Assistant 

General Counsel on February 7, 2012. HUD 

requested closure of the three recommendations 

based upon the legal opinion. 

The legal opinion required HUD to obtain 

from the Authority an independent cost 

estimate and the Authority to submit to HUD a 

noncompetitive procurement exception request 

to resolve recommendation 1A. Because the 

legal opinion required additional action by HUD, 

on May 22, 2012, HUD submitted a revised 

management decision for recommendation 1A to 

include obtaining this information and approving 

the noncompetitive procurement request. 

On September 12, 2012, HUD’s Assistant 

Secretary for Public and Indian Housing granted 

the Authority’s request for an exception to 

procurement requirements. OIG disagreed with 

the result of the revised management decision. 

While OIG acknowledged that HUD could 

provide this procurement exception, OIG 

continues to disagree that the Authority 
Chapter 9 - Audit Resolution 40

showed sufficient justification for its failure 

to comply with procurement requirements or 

that an exception was warranted. OIG did not 

agree with the Authority’s determination that 

competitive methods of procurement were 

infeasible, since it competitively solicited bidders 

and received multiple bidders. Likewise, OIG 

disagreed that the Authority’s inability to select 

activities to undertake and competitively procure 

those activities in a timely manner warranted 

an exception to procurement requirements. 

Further, OIG questioned the prudence 

of granting an exception to procurement 

requirements more than 2 years after the 

procurement took place. 

With respect to recommendation 1B, the legal 

opinion concluded that the Authority did not 

consider the 450 percent budget increase and 

reallocating more than $1.2 million from the 

Authority’s scattered sites to its Wilkinson 

Terrace Apartments as significant and that the 

Authority’s actions complied with applicable 

requirements.

OIG disagreed with this determination 

and maintained that the budget increase 

and reallocation of resources were material 

and, therefore, significant, which triggered 

requirements that the Authority failed to 

meet, including obtaining board approval and 

public notification. The Authority’s 2008 

5-year plan, which was in effect at the time of 

the 450 percent budget increase, did not have 

a definition of what constituted a significant 

amendment as required. After issuance of 

the OIG audit report, the Authority provided 

HUD its 2010 5-year plan, which included a 

definition of a significant amendment. The 

Office of General Counsel incorrectly based 

its opinion on the 2010 plan rather than the 

2008 plan. Further, OIG could not agree with 

the determination that the facts as cited in the 

report were insignificant. (Audit Report: 2011-

FW-1001)

Federal Financial 

Management Improvement 

Act of 1996

In FY 2012, HUD did not substantially comply 

with FFMIA. In this regard, HUD’s financial 

management systems did not substantially 

comply with Federal financial management 

system requirements.

During FY 2012, HUD made limited progress 

in bringing the Federal financial management 

systems into compliance with FFMIA. However, 

HUD’s financial management systems continued 

to not meet current requirements. HUD’s 

systems were not operated in an integrated 

fashion and linked electronically to efficiently 

and effectively provide the agencywide financial 

system support necessary to carry out the 

agency’s mission and support the agency’s 

financial management needs.

HUD’s financial systems, many of which were 

developed and implemented before the issue 

date of current standards, were not designed to 

provide the range of financial and performance 

data currently required. The modernization 

project, HUD’s Integrated Financial 

Management Improvement Project, was 

launched in FY 2003 but has been plagued by 

delays. Originally planned for implementation in 

2006, the contract for the Project was awarded on 

September 23, 2010. The 10-year contract plan 

was established based on the implementation 

Project start date and current schedule. With 

the award of the contract, HUD anticipated 

implementation of phase I of the Project in time 

to have all of the fiscal year 2012 financial data 

within the new system. During fiscal year 2012, 

HUD convened an independent government 

assessment team, composed of several subjectmatter experts from multiple government 

agencies, to rapidly evaluate the status of the 

Project. HUD has renamed the Project the HUD 

Enterprise-wide Financial Management Project.
41 Chapter 9 - Audit Resolution 

As of September 30, 2012, HUD does not have 

an operational new core financial system. Base 

period performance goals and objectives were 

not met, and in March 2012, the Project was 

stopped, and HUD began reevaluating its 

options for the Project. Sponsorship of the 

Project has been transferred from the Office of 

the Chief Financial Officer (OCFO) to the HUD 

Deputy Secretary. The Deputy Secretary and a 

working group comprised of OCFO, the Office 

of the Chief Information Officer, and the Office 

of the Chief Procurement Officer are reassessing 

HUD’s options for the Project. 

OIG remains concerned about the successful 

execution and completion of the Project. In 

addition, OIG remains concerned that 

completion of the Project will not result in a 

truly integrated core financial system. As HUD 

assesses the future of the Project, it is clear that 

it is in jeopardy and that additional time and 

funding will be needed. 

FFMIA requires OIG to report in its Semiannual 

Reports to the Congress instances and reasons 

when an agency has not met the intermediate 

target dates established in its mediation plan 

required by FFMIA. At the end of 2012, HUD 

reported that 3 of the 39 financial management 

systems were not in substantial compliance 

with FFMIA. These three systems are the 

HUD Procurement System (HPS), Small 

Purchase System (SPS), and Facilities Integrated 

Resources Management System. HUD acquired 

a new application, the HUD Integrated 

Acquisition Management System (HIAMS), to 

replace HPS and SPS on September 30, 2010. 

The HIAMS application went live on October 

1, 2011. The HIAMS implementation used 

a phased approach; therefore, HPS and SPS 

were still operational and used during FY 2012. 

HUD plans to decommission HPS and SPS in 

the first quarter of 2013. Additionally, OIG 

determined that the Integrated Disbursement 

and Information System (IDIS) was not in 

substantial compliance with FFMIA. However, 

HUD continues to report IDIS as compliant. 

Although HUD certified 36 individual systems 

as compliant with Federal financial management 

systems requirements, HUD did not perform 

independent reviews of all of its financial 

management systems in accordance with 

OMB Circular A-127. Collectively and in the 

aggregate, deficiencies continued to exist. 
Appendix 1 - Peer Review Reporting 42

Office of Audit

Background

The Dodd-Frank Wall Street Reform and 

Consumer Protection Act (Public Law No. 111-

203), section 989C, requires inspectors general 

to report the latest peer review results in their 

semiannual reports to Congress. The purpose 

in doing so is to enhance transparency within 

the government. Both the Office of Audit and 

Office of Investigation are required to undergo 

a peer review of their individual organizations 

every 3 years. The purpose of the review is to 

ensure that the work completed by the respective 

organizations meets the applicable requirements 

and standards. The following is a summary of 

the status of the latest round of peer reviews for 

the organization. 

Peer Review Conducted 

on HUD OIG

The U.S. Department of Housing and Urban 

Development, Office of Inspector General 

(HUD OIG), received a grade of pass (the 

highest rating) on the peer review report issued 

by U.S. Department of Education Inspector

General on September 28, 2012. There were 

no recommendations included in the System 

Review Report. The report stated: 

In our opinion, the system of quality control in 

effect for the year ended March 31, 2012, for the 

audit organization of the HUD OIG has been 

suitably designed and complied with to provide 

the HUD OIG with reasonable assurance of 

performing and reporting in conformity with 

applicable professional standards in all material 

respects. Federal audit organizations can receive a 

rating of pass, pass with deficiencies, or fail. The 

HUD OIG has received a peer review rating of 

pass. 

Peer Review Conducted by 

HUD OIG on USDA

The U.S. Department of Agriculture (USDA) 

OIG received a rating of pass on the peer review 

report issued by HUD OIG on September 30, 

2009. The System Review Report contained no 

findings or recommendations.

Office of Investigation

Peer Review Conducted 

on HUD OIG

The most recent peer review of the Office of 

Investigation was conducted in 2011 by the U.S. 

Department of Health and Human Services 

OIG. The results of the peer review found HUD 

OIG compliant (the highest rating) with the 

quality of standards established by the inspector 

general community and the attorney general 

guidelines.

Appendix 1

Peer Review Reporting 
43 Appendix 2 - Audit Reports Issued 

Internal Reports

Audit Reports

Chief Financial Officer

2012-FO-0006 HUD’s Oversight of Recovery Act-Funded Housing Programs, 09/27/2012. 

Better use: $9,518,991.

 Chief Information Officer

2012-DP-0004 Security Implemented on HUD’s IBM Mainframe Lacked Some 

Configuration and Technical Controls, 08/24/2012.

2012-DP-0005 Review of Controls Over HUD’s Mobile Devices, 09/28/2012.

 Housing

2012-CH-0001 HUD's Oversight of Lenders' Underwriting of FHA-Insured Loans Was 

Generally Adequate, 08/17/2012. Questioned: $280,107; Unsupported: 

$280,107.

2012-KC-0001 HUD Generally Established Controls Over the Section 242 Program but

Used an Outdated Handbook, and Its Guidance Had Not Been Cleared 

Through HUD’s Directives System, 04/10/2012.

2012-KC-0004 FHA Paid Claims for Approximately 11,693 Preforeclosure Sales that Did 

Not Meet FHA Requirements, 09/18/2012. Questioned: $360,760; Better 

use: $781,642,944.

2012-LA-0003 HUD Did Not Always Enforce REO M&M III Program Requirements,

09/18/2012. Questioned: $491,946; Better use: $1,045,730.

 Office of Chief Human Capital Officer

2012-KC-0002 HUD Did Not Implement Adequate Policies and Procedures for Sanitizing 

Media in Its Multifunction Devices, 05/03/2012.

 Public and Indian Housing

2012-AT-0001 The Section Eight Management Assessment Program Lacked Adequate

Controls To Accomplish Its Objective, 08/03/2012.

2012-KC-0003 HUD Did Not Effectively Oversee and Manage the Receivership of the

East St. Louis Housing Authority, 09/05/2012.

Appendix 2

Audit Reports Issued 
Appendix 2 - Audit Reports Issued 44

Internal Reports

Audit Reports

2012-KC-0005 HUD’s Real Estate Assessment Center Did Not Always Ensure That

Independent Public Accountants Followed Statement on Auditing 

Standards (SAS) 99 Requirements, 09/28/2012.

2012-LA-0004 HUD Did Not Ensure Public Housing Agencies’ Use of Property Insurance

Recoveries Met Program Requirements, 09/21/2012.

2012-LA-0005 HUD’s Office of Native American Programs Did Not Provide Adequate 

Oversight To Ensure Grantee Compliance With Annual Audit Report

Submission Requirements, 09/28/2012.

Audit-Related Memorandums10

 Chief Financial Officer

2012-IE-0801 HUD's Conference Spending, 08/06/2012.

 Community Planning and Development

2012-CH-0801 HUD's Office of Community Planning and Development Needs To 

Improve Its Tracking of HOME Investment Partnerships Program

Technical Assistance Activities, 09/28/2012.

2012-NY-0802 Corrective Action Verification, City of Newburgh, NY, Section 108 Loan 

Guarantee Program, Audit Report 2009-NY-1001, 09/21/2012.

Housing

2012-NY-0801 Corrective Action Verification, Office of Single Family 

Program Development, Housing Counseling Assistance 

Program, Audit Report 2006-NY-0001, 05/08/2012.

10

10The memorandum format is used to communicate the results of reviews not performed in accordance with generally 

accepted government audit standards, to close out assignments with no findings and recommendations, to respond to 

requests for information, to report on the results of a survey, or to report the results of civil actions or settlements.
45 Appendix 2 - Audit Reports Issued 

External Reports

Audit Reports

 Community Planning and Development

2012-AT-1009 The Municipality of Bayamón Did Not Always Ensure Compliance With

HOME Investment Partnerships Program Requirements, Bayamon, PR,

05/23/2012. Questioned: $4,040,662; Unsupported: $4,039,462; Better use: 

$1,300,878.

2012-AT-1010 The Alabama Department of Economic and Community Affairs Did

Not Follow Its NSP Requirements, Montgomery, AL, 05/24/2012. 

Questioned: $8,540; Unsupported: $8,540; Better use: $304,043.

2012-AT-1015 Little Haiti Did Not Fully Comply With Federal Rules 

When Administering NSP2, Miami, FL, 09/06/2012. 

Questioned: $55,052; Better use: $31,257.

2012-FW-1011 The City of Houston Could Have Better Used Its CDBG Disaster Recovery 

Downpayment Assistance Funds, Houston, TX, 07/19/2012.

2012-FW-1013 The Texas Department of Housing and Community Affairs Did Not 

Always Comply with NSP Requirements, Austin, TX, 08/22/2012. 

Questioned: $25,346,773; Unsupported: $25,304,591.

2012-FW-1014 The State of Louisiana Generally Complied With Recovery Act HPRP, 

Baton Rouge, LA, 09/07/2012. Questioned: $41,764; Unsupported: 

$41,764.

2012-KC-1006 The City of St. Louis Did Not Effectively Manage Its Recovery

Act Funding, St. Louis, MO, 09/27/2012. Questioned: $1,369,308; 

Unsupported: $1,369,308.

2012-LA-1007 Los Angeles Neighborhood Housing Services Did Not Always Properly 

Administer Its NSP2 Grant, Los Angeles, CA, 06/05/2012. Questioned: 

$45,625; Unsupported: $30,000.

2012-LA-1008 The City of Phoenix Did Not Always Comply With Program Requirements 

When Administering Its NSP1 and NSP2 Grants, Phoenix, AZ, 

06/15/2012. Questioned: $6,688,248; Unsupported: $6,156,905.

2012-LA-1012 The City of Long Beach Did Not Fully Comply With Federal Regulations 

When Administering Its NSP2 Grant, Long Beach, CA, 09/21/2012. 

Questioned: $84,110.
Appendix 2 - Audit Reports Issued 46

External Reports

Audit Reports

2012-NY-1009 The City Newark Generally Obligated and Expended NSP1 Funds in

Accordance With Regulations, but Had Weaknesses in Administrative 

Controls, Newark, NJ, 07/20/2012. Questioned: $60,525; Unsupported: 

$49,275; Better use: $123,193.

2012-NY-1010 The Lower Manhattan Development Corporation Approved Invoices That 

Were Not Always Consistent With Subrecipient Agreements, New York, 

NY, 07/27/2012. Questioned: $159,261; Unsupported: $34,485; Better use: 

$2,258.

2012-NY-1011 The City of Elizabeth Did Not Always Administer Its CDBG Program in

Accordance With Regulations, Elizabeth, NJ, 08/15/2012. Questioned: 

$856,805; Unsupported: $457,712; Better use: $4,812,195.

2012-PH-1009 The City of Philadelphia Generally Administered Its NSP2 Grant in 

Accordance With Applicable Requirements, Philadelphia, PA, 06/21/2012.

2012-PH-1011 Prince George’s County Generally Did Not Administer Its HOME Program

in Accordance With Federal Requirements, Largo, MD, 08/03/2012. 

Questioned: $3,797,139; Unsupported: $1,385,545; Better use: 

$4,733,357.

2012-SE-1003 Washington State Generally Complied With HOME Program

Requirements; However, It Did Not Always Verify Project Accessibility or 

Report Accurate Matching Contributions, Olympia, WA, 05/09/2012.

2012-SE-1004 The City of Seattle Used Its CDBG-R Funds in Accordance With HUD 

and Recovery Act Requirements, Seattle, WA, 06/25/2012.

 Housing

2012-AT-1011 Nationwide Mortgage & Associates, Inc., Did Not Follow HUD 

Requirements in Approving FHA Loans and Implementing Its Quality 

Control Program, Fort Lauderdale, FL, 05/31/2012. Better use: $378,858.

2012-AT-1013 Universal American Mortgage Company Did Not Comply With HUD 

Regulations When Originating and Underwriting FHA Loans and 

Implementing Its Quality Control Program, Miami, FL, 06/06/2012. Better 

use: $284,776.
47 Appendix 2 - Audit Reports Issued 

External Reports

Audit Reports

2012-AT-1014 The Owner of the West Village Expansion Project Failed To Comply

With Its Regulatory Agreement With HUD, Durham, NC, 07/27/2012. 

Questioned: $1,333,657.

2012-CH-1008 Nations Lending Corporation Needs To Improve Its Quality Control 

Reviews of Early Payment Defaulted Loans, Independence, OH,

06/01/2012.

2012-CH-1014 Mortgage Now Inc. Did Not Always Comply With HUD’s Underwriting 

and Quality Control Requirements, Shrewsbury, NJ, 09/28/2012. Better 

use: $555,678.

2012-CH-1015 Allen Mortgage, LLC, Did Not Comply With HUD Requirements for 

Underwriting FHA Loans and Fully Implement Its Quality Control 

Program in Accordance With HUD's Requirement, Centennial Park, AZ, 

09/30/2012. Questioned: $1,067,119; Unsupported: $199,361; Better use: 

$1,000,042.

2012-DE-1005 A Hotline Complaint About Utah Housing Corporation Mortgage 

Servicing Was Not Substantiated, West Valley City, UT, 09/27/2012.

2012-FW-1007 SWBC Mortgage Corporation Did Not Follow HUD-FHA Underwriting 

Requirements in 1 and Had Minor Deficiencies in 3 of 10 Single-Family 

Loans, San Antonio, TX, 05/15/2012. Better use: $115,654.

2012-FW-1012 Weststar Mortgage Corporation Did Not Comply With HUD FHA 

Single Family Requirements for 10 Loans Reviewed, Albuquerque, NM, 

08/02/2012. Questioned: $554,130.

2012-LA-1006 Amar Plaza Was Not Administered in Accordance With HUD Rules 

and Regulations, La Puente, CA, 05/21/2012. Questioned: $192,808; 

Unsupported: $142,369; Better use: $274,587.

2012-LA-1010 Innotion Enterprises, Inc., Did Not Always Comply With Its REO

Contract Requirements, Las Vegas, NV, 09/12/2012. Questioned: $11,210; 

Better use: $1,035,780.

2012-LA-1011 Bankers Mortgage Group Loan Originations Did Not Comply With 

FHA-Insured Loan Documentation Requirements, Woodland Hills, CA, 

09/13/2012. Questioned: $58,704; Better use: $1,521,014.
Appendix 2 - Audit Reports Issued 48

External Reports

Audit Reports

2012-PH-1010 The National Foundation for Credit Counseling Generally Met HUD 

Requirements But Did Not Always Ensure That Home Equity Conversion

Mortgage Counseling Requirements Were Met, Washington, DC, 

07/31/2012. Questioned: $76,146; Unsupported: $29,296.

2012-SE-1006 Gruening Park Apartments, Did Not Always Comply With HUD Rules and 

Regulations, Juneau, AK, 09/05/2012. Questioned: $7,025.

 Lead Hazard Control

2012-SE-1005 Washington State Generally Complied With Lead Hazard Control Grant 

and Recovery Act Requirements but Charged Excessive Administrative

Costs, Olympia, WA, 08/09/2012. Questioned: $202,824.

 Public and Indian Housing

2012-AO-1002 The Jefferson Parish Housing Authority Violated Federal Regulations, 

Marrero, LA, 07/30/2012. Questioned: $655,907; Unsupported: $453,793.

2012-AT-1012 The Housing Authority of the City of Hickory Mismanaged Some 

of Its HUD Funds, Hickory, NC, 06/01/2012. Questioned: $611,640; 

Unsupported: $80,634.

2012-BO-1004 The Lawrence Housing Authority Did Not Obtain HUD Approval to 

Fund a Trust Account and Had Weaknesses in Its Controls, Boston, MA, 

07/31/2012. Questioned: $2,510,174; Unsupported: $2,510,174.

2012-BO-1005 Housing Choice Voucher Program Units Did Not Meet HUD’s Housing 

Quality Standards, and Authority Officials Did Not Always Comply with 

HUD’s or Their Own Procurement Policy, Augusta, ME, 09/28/2012. 

Questioned: $306,698; Unsupported: $111,742.

2012-CH-1009 The Hammond Housing Authority Did Not Administer Its Recovery 

Act Grants in Accordance With Recovery Act, HUD’s, and Its Own 

Requirements, Hammond, IN, 08/03/2012. Questioned: $282,674; 

Unsupported: $281,049; Better use: $7,000.

2012-CH-1010 The Aurora Housing Authority Did Not Administer Its Grant in 

Accordance With Recovery Act, HUD, and Its Own Requirements, Aurora, 

IL, 09/05/2012. Questioned: $345,838; Unsupported: $343,438; Better 

use: $919.
49 Appendix 2 - Audit Reports Issued 

External Reports

Audit Reports

2012-CH-1011 The Stark Metropolitan Housing Authority Did Not Always Administer 

Its Grant in Accordance With Recovery Act, HUD’s, and Its Own 

Requirements, Canton, OH, 09/27/2012. Questioned: $7,500; 

Unsupported: $6,820; Better use: $537.

2012-CH-1012 The Saginaw Housing Commission Did Not Always Administer Its Section 

8 Housing Choice Voucher program in Accordance With HUD’s and Its 

Own Requirements, Saginaw, MI, 09/27/2012. Questioned: $845,253; 

Unsupported: $812,054; Better use: $177,705.

2012-CH-1013 The Flint Housing Commission Did Not Always Administer Its Grants in 

Accordance With Recovery Act, HUD’s, and Its Own Requirements, Flint, 

MI, 09/27/2012. Questioned: $3,120,000.

2012-DE-1004 The Aurora Housing Authority Did Not Always Follow Requirements 

When Obligating, Expending, and Reporting Information About Its

Recovery Act Capital Funds, Aurora, CO, 05/04/2012. Questioned: 

$228,395; Unsupported: $206,377.

2012-FW-1008 The Management and Board of Commissioners of the Housing 

Authority of the City of Port Arthur Failed To Exercise Their Fiduciary

Responsibilities, Port Arthur, TX, 06/01/2012. Questioned: $5,920,931; 

Unsupported: $5,458,657; Better use: $59,191.

2012-FW-1009 The Gonzales Housing Authority Generally Followed Recovery Act 

Public Housing Capital Fund Requirements, Gonzales, TX, 06/18/2012. 

Questioned: $7,600.

2012-FW-1010 The Housing Authority of the City of Mineral Wells Had Errors in the

Administration of Its Recovery Act Public Housing Capital Fund Grant, 

Mineral Wells, TX, 06/29/2012. Questioned: $14,145.

2012-KC-1003 The Topeka Housing Authority Did Not Always Document Its 

Procurement Actions and Did Not Accurately Report on Its Recovery Act 

Funds, Topeka, KS, 04/05/2012.

2012-KC-1004 The Manhattan Housing Authority Improperly Executed a Contract

Change Order and Did Not Accurately Report on Its Recovery Act Funds, 

Manhattan, KS, 04/09/2012. Questioned: $10,349; Unsupported: $10,349.
Appendix 2 - Audit Reports Issued 50

External Reports

Audit Reports

2012-KC-1005 The Wichita Housing Authority Did Not Always Properly Administer Its 

Housing Choice Voucher Program, Wichita, KS, 09/19/2012. Questioned: 

$67,269.

2012-LA-1009 Most Allegations Against the Oakland Housing Authority Related to 

Housing Quality Standards Inspection Services, Were Generally Not Valid, 

Oakland, CA, 08/03/2012. Questioned: $28,508.

2012-NY-1008 Transactions Between the Housing Authority of the City of Perth 

Amboy and its Nonprofit Subsidiary Did Not Always Comply With 

HUD Regulations, Perth Amboy, NJ, 06/01/2012. Questioned: $156,250; 

Unsupported: $156,250; Better use: $286,782.

2012-NY-1012 The Buffalo Municipal Housing Authority Public Housing Capital Fund 

Stimulus (Formula) Recovery Act Program, Buffalo, NY, 09/12/2012. 

Questioned: $9,872,405; Unsupported: $9,761,591.

2012-PH-1012 The Allegheny County Housing Authority, Needs To Improve Its 

Inspections To Ensure That All Section 8 Housing Choice Voucher Units

Meet Housing Quality Standards, Pittsburgh, PA, 09/21/2012. Questioned: 

$15,070; Better use: $5,163,804.

11

Audit-Related Memorandums11

 Community Planning and Development

2012-FW-1803 Corrective Action Verification, City of Tulsa – CDBG, Land Use and 

Program Income, Audit Report 2008-FW-1012, Tulsa, OK, 04/10/2012. 

Questioned: $2,048,750; Unsupported: $2,048,750; Better use: $42,000.

2012-FW-1804 The City of San Antonio, TX, Did Not Administer Its NSP Grant in 

Accordance With Requirements, San Antonio, TX, 08/06/2012.

11The memorandum format is used to communicate the results of reviews not performed in accordance with generally 

accepted government audit standards, to close out assignments with no findings and recommendations, to respond to 

requests for information, to report on the results of a survey, or to report the results of civil actions or settlements.
51 Appendix 2 - Audit Reports Issued 

2012-NY-1802 Village of Spring Valley, Hotline Complaint, Federal Housing Finance 

Agency Complaint Number Z-12-0445-1, Village of Spring Valley, NY, 

09/28/2012. Questioned: $927,438; Unsupported: $102,438.

General Counsel

2012-CF-1805 Final Civil Action - Alleged Violations of the Financial 

Institutions Reform, Recovery, and Enforcement Act of

1989, Pasadena, CA, 06/05/2012. Better use: $50,000.

2012-CF-1806 Final Civil Action - Alleged Violations of the Financial 

Institutions Reform, Recovery, and Enforcement Act of

1989, Pasadena, CA, 06/05/2012. Better use: $50,000.

2012-CF-1807 Final Civil Action - Alleged Violations of the Financial 

Institutions Reform, Recovery, and Enforcement Act of

1989, Pasadena, CA, 06/05/2012. Better use: $50,000.

2012-CF-1808 Final Civil Action: Occupancy Status Violation – FHA Streamline 

Finance, West Bend, WI, 06/05/2012. Questioned: $6,250.

2012-CF-1809 Final Civil Action: Bank of America Settled Alleged Violations 

of the False Claims Act by Countrywide Home Loans, Inc., 

Charlotte, NC, 06/12/2012. Questioned: $470,813,750.

2012-CF-1810 Final Civil Action: Flagstar Bank, FSB, Settled False Claims Act 

Allegations of Submitting False Certifications to HUD on FHA 

Loans, Troy, MI, 06/27/2012. Questioned: $14,550,000.

2012-CF-1811 Final Civil Action: Deutsche Bank Settled Alleged Violations 

of the False Claims Act by MortgageIT, Inc., New York, 

NY, 07/23/2012. Questioned: $196,231,000.

2012-CF-1812 Final Civil Action: Default Judgment Issued Against Section 

8 Landlord for Fraudulently Claiming Housing Assistance 

Payments, Orlando, FL, 09/24/2012. Better use: $137,936.

2012-CF-1813 Final Civil Action: Settlement of Alleged Violations of the 

Financial Institutions Reform, Recovery, and Enforcement Act of

1989, Seal Beach, CA, 09/24/2012. Better use: $5,000,000.

2012-CF-1814 Final Civil Action: CitiMortgage, Inc., Settled Allegations 

of Failing To Fully Comply With HUD-FHA Requirements 

and Submitting False Certifications to HUD on FHA Loans, 

O'Fallon, MO, 09/25/2012. Questioned: $122,840,800.
Appendix 2 - Audit Reports Issued 52

2012-FW-1805 Final Civil Action: Bartlesville Health Care Center, Inc., Owners 

and Lender Settled Alleged Violations of the False Claims Act, 

Bartlesville, OK, 08/24/2012. Questioned: $2,644,089.

 Housing

2012-CH-1803 A Summary of the Foreclosure and Claims Process Reviews for Five 

Mortgage Servicers That Engaged in Improper Foreclosure Practices,

Washington, DC, 09/28/2012. Questioned: $315,250,829.

2012-LA-1801 Shea Mortgage, Inc., Allowed the Recording of Prohibited 

Restrictive Covenants, Aliso Viejo, CA, 09/26/2012. Questioned: 

$4,034,448; Unsupported: $2,566,837; Better use: $5,092,201.

 Public and Indian Housing

2012-NY-1801 New York City Housing Authority Hotline Complaint, Case 

Number HL-2011-0705, New York, NY, 05/17/2012.
53 Appendix 3 - Tables 

Table A

Audit reports issued before the start of period with 

no management decision as of September 30, 2012 

*Significant audit reports described in previous semiannual reports

Report number and title Reason for lack of 

management decision Issue date 

* 2009-AT-0001 HUD Lacked Adequate 

Controls to Ensure the Timely Commitment

and Expenditure of HOME funds

See chapter 9, page 36. 09/28/2009

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2002-AT-1002 Housing Authority of the City 

of Tupelo, Housing Programs 

Operations, Tupelo, MS

07/03/2002 10/31/2002 07/01/2015

2002-KC-0002 Nationwide Survey of HUD's 

Office of Housing Section 232 

Nursing Home Program

07/31/2002 11/22/2002 Note 1

2005-AT-1004 Housing Authority of the 

City of Durham, NC

11/19/2004 03/15/2005 03/15/2015

2005-AT-1013 Corporacion Para el Fomento Economico

de la Ciudad Capital Did Not Administer 

Its Independent Capital Fund in 

Accordance With HUD Requirements, 

San Juan, PR

09/15/2005 01/11/2006 Note 1

2006-KC-1013 The Columbus Housing Authority 

Improperly Expended and Encumbered

Its Public Housing Funds, Columbus, NE

06/30/2008 10/17/2006 11/30/2012

Appendix 3

Tables 
Appendix 3 - Tables 54

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2006-DP-0802 Assessment of HUD’s Compliance 

With OMB Memorandum M-06-

16, “Protection of Sensitive Agency 

Information”

09/21/2006 11/24/2006 09/30/2014

2007-KC-0002 HUD Can Improve Its Use of 

Residual Receipts To Reduce 

Housing Assistance Payments

01/29/2007 01/29/2007 Note 1

2007-KC-0003 HUD Did Not Recapture Excess Funds

from Assigned Bond-Financed Projects

04/30/2007 08/27/2007 Note 1

2007-SE-0001 HUD's Oversight of the Section 

8 Project-Based Contract

06/07/2007 10/05/2007 Note 1

2007-AT-1010 The Cathedral Foundation of 

Jacksonville Used More Than $2.65 

Million in Project Funds for Questioned 

Costs, Jacksonville, FL

08/14/2007 12/03/2007 05/10/2017

2007-KC-0801 Lenders Submitted Title II 

Manufactured Housing Loans for 

Endorsement Without the Required

Foundation Certifications

09/24/2007 03/11/2008 Note 1

2008-LA-0001 The Los Angeles Multifamily Hub Did 

Not Properly Monitor Its PerformanceBased Contract Administrator, Los 

Angeles LOMOD

11/05/2007 03/03/2008 Note 1

2008-LA-1003 Home for Life Foundation Did Not 

Properly Administer Its Supportive 

Housing Program Grants, Los Angeles, 

CA

12/18/2007 02/26/2008 04/01/2013
55 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2008-AO-1002 State of Louisiana, Road Home Program, 

Funded 418 Grants Coded Ineligible or 

Lacking an Eligibility Determination,

Baton Rouge, LA

01/30/2008 05/12/2008 Note 1

2008-AT-0003 HUD Lacked Adequate Controls Over 

the Physical Condition of Section 8 

Voucher Program Housing Stock

05/14/2008 09/10/2008 Note 2

2008-DP-0004 Review of Selected FHA Major 

Applications’ Information Security 

Controls

06/12/2008 10/08/2008 Note 2

2008-LA-1012 The Housing Authority of the City 

of Calexico Did Not Comply With 

Public Housing Program Rules 

and Regulations, Calexico, CA

07/01/2008 10/14/2008 12/31/2013

2009-AO-1001 State of Louisiana, Road Home 

Program, Did Not Ensure That Road

Home Employees Were Eligible To

Receive Additional Compensation 

Grants, Baton Rouge, LA

05/05/2009 09/16/2009 Note 1

2009-AO-1002 State of Louisiana, Road Home 

Program, Did Not Ensure That

Multiple Disbursements to a Single 

Damaged Residence Address Were 

Eligible, Baton Rouge, LA

05/05/2009 09/16/2009 Note 1

2009-CH-1008 The City of East Cleveland Did

Not Adequately Manage Its HOME

Investment Partnerships and CDBG 

Programs, East Cleveland, OH

05/11/2009 09/08/2009 07/31/2014
Appendix 3 - Tables 56

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2009-NY-1012 The City of Rome Did Not Administer 

Its Economic Development

Activity in Accordance With HUD 

Requirements, Rome, NY

05/20/2009 09/23/2009 01/30/2032

2009-DP-0005 Review of Implementation of Security 

Controls Over HUD's Business Partners

06/11/2009 11/17/2009 12/31/2014

2009-CH-1011 The Housing Authority of the City of 

Terre Haute Failed To Follow Federal 

Requirements and Its Employment

Contract Regarding Nonprofit 

Development Activities, Terre Haute, IN

07/31/2009 11/24/2009 01/01/2030

2009-KC-0001 HUD Subsidized an Estimated 2,094

to 3,046 Households That Included 

Lifetime Registered Sex Offenders

08/14/2009 03/31/2011 Note 1

2009-CH-0002 The Office of Affordable Housing 

Programs’ Oversight of HOME

Investment Partnerships Program 

Income Was Inadequate

08/28/2009 12/26/2009 Note 1

2009-LA-1019 The Owner of Park Lee Apartments 

Violated Its Regulatory Agreement 

With HUD, Phoenix, AZ

09/15/2009 01/13/2010 Note 2

2009-DE-1005 Adams County Did Not Have 

Adequate Controls Over Its Block 

Grant Funds, Westminster, CO

09/17/2009 01/15/2010 Note 1

2009-AT-0001 HUD Lacked Adequate Controls To 

Ensure the Timely Commitment

and Expenditure of HOME funds

09/28/2009 03/18/2011 Note 3
57 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2009-AT-1013 The City of Atlanta Entered Incorrect

Commitments Into HUD’s Integrated 

Disbursement and Information System 

for its HOME Program, Atlanta, GA

09/28/2009 11/05/2009 Note 1

2010-LA-0001 HUD’s Performance-Based 

Contract Administration Contract 

Was Not Cost Effective

11/12/2009 03/12/2010 Note 1

2010-FO-0003 Additional Details To Supplement 

Our Report on HUD's Fiscal Years 

2009 and 2008 Financial Statements

11/16/2009 04/02/2010 Note 1

2010-KC-1001 The State of Iowa Misspent CDBG 

Disaster Assistance Funds and 

Failed To Check for Duplicate 

Benefits, Des Moines, IA

03/10/2010 09/13/2010 10/31/2012

2010-KC-1003 The City of East St. Louis Did Not

Properly Allocate Salary and Building 

Expenses or Properly Document

Its Process To Secure a Consulting 

Services Contract, East St. Louis, IL

03/26/2010 07/22/2010 Note 1

2010-CH-0001 The Office of Block Grant Assistance 

Lacked Adequate Controls Over 

the Inclusion of Special Conditions 

in NSP Grant Agreements

03/29/2010 07/27/2010 Note 1

2010-AT-1003 The Housing Authority of 

Whitesburg Mismanaged Its 

Operations, Whitesburg, KY

04/28/2010 08/26/2010 11/29/2035

2010-PH-1008 Sasha Bruce Youthwork, 

Incorporated, Did Not Support 

More Than $1.9 Million in 

Expenditures, Washington, DC

05/11/2010 11/03/2010 Note 2
Appendix 3 - Tables 58

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2010-CH-1007 The Michigan State Housing 

Development Authority Needs To 

Improve Its Controls Over Section 

8 Project-Based Housing Assistance 

Payments, Lansing, MI

05/14/2010 09/08/2010 03/01/2016

2010-AT-1006 The Puerto Rico Department of Housing 

Failed To Properly Manage Its HOME

Investment Partnerships Program, San 

Juan, PR

06/11/2010 10/08/2010 Note 2

2010-CH-1008 The DuPage Housing Authority 

Inappropriately Administered Its 

Section 8 Project-Based Voucher 

Program, Wheaton, IL

06/15/2010 10/08/2010 12/31/2012

2010-FW-1005 The Texas Department of Housing 

and Community Affairs Did Not 

Fully Follow Requirements or Best 

Practices in the Acquisition of Its 

Disaster Recovery-Funded Program 

Management Firm, Austin, TX

07/20/2010 11/16/2010 Note 2

2010-AT-1007 The Housing Authority, City of 

Wilson, Lacked the Capacity To 

Effectively Administer Recovery

Act Funds, Wilson, NC

07/27/2010 11/24/2010 11/27/2013

2010-LA-1014 The Retreat at Santa Rita Springs 

Did Not Comply With HUD Rules 

and Regulations and Other Federal 

Requirements, Green Valley, AZ

08/02/2010 11/29/2010 Note 2

2010-AT-1011 The Puerto Rico Department of Housing 

Did Not Ensure Compliance With

HOME Program Objectives, San Juan,

PR

08/25/2010 12/06/2010 Note 2
59 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2010-FW-0003 HUD Was Not Tracking Almost 

13,000 Defaulted HECM Loans

With Maximum Claim Amounts of 

Potentially More Than $2.5 Billion

08/25/2010 12/03/2010 12/31/2012

2010-LA-0002 HUD’s Office of Single Family 

Housing’s Management Controls Over 

Its Automated Underwriting Process

09/15/2010 01/13/2011 10/01/2012

2010-KC-1008 The City of East St. Louis Awarded Block

Grant Program Funds to Recipients 

Without Adequately Verifying Their 

Eligibility, East St. Louis, IL

09/28/2010 01/26/2011 Note 2

2010-CF-1801 Final Civil Action, Anchor Mortgage 

Corporation, Loan Origination Fraud 

- Violations of the False Claims Act, 

Chicago, IL

09/30/2010 02/18/2011 02/17/2013

2010-HA-0003 HUD Needs To Improve Controls Over 

Its Administration of Completed and 

Expired Contracts

09/30/2010 01/27/2011 Note 2

2011-DP-0001 HUD Did Not Properly Manage HITS 

Contracts and Contractors To Fully 

Comply With Contract Requirements 

and Acquisition Regulations

10/06/2010 02/03/2011 11/30/2012

2011-CH-1001 The City of Flint Lacked Adequate 

Controls Over Its HOME Program

Regarding Community Housing 

Development Organizations’ HomeBuyer Projects, Subrecipients’ Activities, 

and Reporting Accomplishments 

in HUD’s System, Flint, MI

10/13/2010 02/03/2011 04/30/2013
Appendix 3 - Tables 60

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-PH-1002 The City of Scranton Did Not 

Administer Its CDBG Program 

in Accordance With HUD 

Requirements, Scranton, PA

11/08/2010 03/08/2011 Note 2

2011-PH-1003 The Pennsylvania Housing Finance 

Agency Generally Administered Its Tax 

Credit Assistance Program Funded Under 

the Recovery Act in Accordance With 

Applicable Requirements, Harrisburg, PA

11/08/2010 03/08/2011 Note 2

2011-NY-1002 The City of Bayonne Did Not Adequately 

Administer Its Economic Development

Program, Bayonne, NJ

11/12/2010 03/11/2011 Note 2

2011-FO-0003 Additional Details To Supplement Our 

Report on HUD's Fiscal Years 2010 and 

2009 Financial Statements

11/15/2010 08/08/2011 Note 2

2011-NY-1003 The Irvington Housing Authority 

Did Not Administer Its Capital 

Fund Programs in Accordance With 

HUD Regulations, Irvington, NJ

11/24/2010 03/23/2011 04/30/2013

2011-NY-1004 The City of Binghamton Did Not 

Always Administer Its Section 108 Loan 

Program in Accordance With HUD 

Requirements, Binghamton, NY

12/21/2010 04/20/2012 04/19/2013

2011-PH-1005 The District of Columbia Did Not 

Administer Its HOME Program

in Accordance With Federal 

Requirements, Washington, DC

12/23/2010 04/22/2011 Note 2
61 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-CH-1003 The City of Cleveland Lacked Adequate 

Controls Over Its HOME Investment

Partnerships Program and American 

Dream Downpayment Initiative-Funded 

Afford-A-Home Program, Cleveland, OH

12/27/2010 04/26/2011 04/19/2013

2011-AT-1802 The Municipality of Arecibo Charged 

the HOME Program With Expenditures

That Did Not Meet Program Objectives, 

Arecibo, PR

01/27/2011 05/26/2011 Note 2

2011-CH-1004 The State of Indiana’s Administrator 

Lacked Adequate Controls Over the 

State’s HOME Investment Partnerships

Program and American Dream 

Downpayment Initiative-Funded First 

Home/PLUS Program, Indianapolis, IN

01/31/2011 05/25/2011 Note 2

2011-KC-1001 The City of East St. Louis Did Not

Properly Manage Housing Rehabilitation 

Contracts Funded by the CDBG 

Program, East St. Louis, IL

02/09/2011 06/09/2011 Note 2

2011-CF-1801 An Underwriting Review of 15 

FHA Lenders Demonstrated That 

HUD Missed Critical Opportunities 

to Recover Losses to the FHA 

Insurance Fund, Washington, DC 

03/02/2011 05/16/2012 Note 2

2011-PH-1008 The West Virginia Housing Development 

Fund Generally Administered Its 

Tax Credit Assistance Program 

Funded Under the Recovery Act 

in Accordance With Applicable 

Requirements, Charleston, WV

03/21/2011 07/19/2011 Note 2
Appendix 3 - Tables 62

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-CH-1006 The DuPage Housing Authority 

Inappropriately Administered 

Its Section 8 Housing Choice 

Voucher Program, Wheaton, IL

03/23/2011 07/28/2011 12/31/2012

2011-KC-1003 The Missouri Housing Development 

Commission Did Not Always Disburse 

Its Tax Credit Assistance Program Funds 

in Accordance With Recovery Act 

Requirements, Kansas City, MO

04/01/2011 07/29/2011 Note 2

2011-FW-1007 Albuquerque Housing Services 

Mismanaged Its Recovery Act Funding, 

Albuquerque, NM

04/07/2011 08/03/2011 12/31/2012

2011-NY-1009 The East Orange Revitalization

and Development Corporation Did 

Not Always Comply With HOME

Program Requirements and Federal 

Regulations, East Orange, NJ

04/07/2011 08/03/2011 04/05/2013

2011-AO-1004 The New Orleans Redevelopment 

Authority Had Not Administered Its 

Recovery Act NSP2 in Accordance With 

Federal Regulations, New Orleans, LA

04/08/2011 08/06/2011 Note 2

2011-AT-1006 The Municipality of Mayaguez Did 

Not Ensure Compliance With HOME

Program Objectives, Mayaguez, PR

04/08/2011 08/05/2011 Note 2

2011-FW-0001 The National Servicing Center 

Implemented the FHA-HAMP Loss 

Mitigation Option in Accordance 

With Rules and Regulations

04/08/2011 08/05/2011 Note 2
63 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-NY-1010 The City of Buffalo Did Not Always 

Administer Its CDBG Program in 

Accordance With HUD Requirements, 

Buffalo, NY

04/15/2011 01/25/2012 01/24/2013

2011-AO-1005 The State of Mississippi Generally 

Ensured That Disbursements to

Program Participants Were Eligible

and Supported, Jackson, MS

04/18/2011 08/16/2011 Note 2

2011-LA-0002 HUD Did Not Always Follow Its 

Requirements for the Preclosing and 

Postclosing Review of Mortgage Files 

Submitted by New Direct Endorsement

Lenders

04/18/2011 08/02/2011 12/31/2012

2011-FW-0002 The Office of Healthcare Programs 

Could Increase Its Controls To More 

Effectively Monitor the Section 232

Program

04/26/2011 08/17/2011 Note 2

2011-CH-1008 The State of Michigan Lacked Adequate 

Controls Over Its NSP Regarding Awards, 

Obligations, Subgrantees’ Administrative 

Expenses and Procurement, and

Reporting Accomplishments, Lansing, 

MI

06/03/2011 11/30/2011 10/26/2012

2011-CH-0002 HUD’s Oversight of Its Multifamily 

Housing Subsidy Payment Review 

Process Needs Improvement

06/06/2011 11/30/2011 Note 2

2011-KC-0001 FHA Has Improved Its Annual Lender 

Renewal Process, but Challenges Remain

06/14/2011 04/19/2012 Note 2

2011-FW-1012 The City of Tulsa Mismanaged Its 

Recovery Act Funding, Tulsa, OK

06/16/2011 10/13/2011 10/07/2012
Appendix 3 - Tables 64

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-AO-0001 The Lafayette Parish Housing 

Authority Violated HUD Procurement 

Requirements and Executed

Unreasonable and Unnecessary Contracts

06/22/2011 10/13/2011 10/31/2012

2011-AT-1010 Crossfire Financial Network Did Not 

Follow HUD Requirements in Approving 

FHA Loans and Implementing Its 

Quality Control Program, Miami, FL

06/24/2011 10/11/2011 Note 2

2011-FW-1013 The City of Beaumont Should 

Strengthen Its Controls Over Its 

Homelessness Prevention and Rapid 

Re-Housing Program, Beaumont, TX

06/30/2011 10/27/2011 10/05/2012

2011-PH-1012 The City of Reading Generally Complied 

With NSP2 Requirements, Reading, PA

06/30/2011 10/13/2011 10/13/2012

2011-LA-1012 The City of Las Vegas Did Not Always 

Ensure That Homelessness Prevention

and Rapid Re-Housing Funds Were 

Used as Required, Las Vegas, NV

07/06/2011 10/28/2011 10/27/2012

2011-NY-1802 The City of Dunkirk Used CDBG 

Recovery Act Funding for an Ineligible 

Activity, Dunkirk, NY

07/14/2011 11/10/2011 11/09/2012

2011-LA-1015 Chicanos Por La Causa, Inc., Did Not 

Always Administer Its NSP2 Grant In 

Accordance With HUD Requirements, 

Phoenix, AZ

07/22/2011 11/09/2011 11/09/2012

2011-DP-0008 The Disaster Recovery Grant Reporting 

System That Maintained Recovery Act 

Information Had Application Security 

Control Deficiencies

07/28/2011 11/25/2011 11/21/2012
65 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-NY-1011 The Housing Authority of the City of 

Elizabeth Had Weaknesses in Its Capital

Fund Program’s Financial Controls, 

Elizabeth, NJ

08/04/2011 11/30/2011 11/29/2012

2011-CH-1012 The Saginaw Housing Commission 

Did Not Fully Implement Prior Audit 

Recommendations and Continued To 

Use Its Public Housing Program Funds 

for Ineligible Purposes, Saginaw, MI

08/09/2011 11/10/2011 11/01/2012

2011-PH-1014 The Allegheny County Housing 

Authority Did Not Always 

Procure Goods and Services or 

Obligate Funds According to 

Recovery Act and Applicable HUD 

Requirements, Pittsburgh, PA

08/10/2011 12/22/2011 12/22/2012

2011-AO-1006 The Mississippi Regional Housing 

Authority VIII Generally Followed 

Requirements When Obligating and 

Expending Its Recovery Act Capital

Funds but Did Not Accurately Report 

Recovery Act Grant Information, 

Gulfport, MS

08/16/2011 10/24/2011 10/24/2012

2011-CH-1013 The Youngstown Metropolitan Housing 

Authority Needs To Improve Its 

Procurement Process, Youngstown, OH

08/16/2011 12/13/2011 10/30/2012

2011-LA-1016 The City of Compton Did Not 

Administer Its HOME Program in

Compliance With HOME Requirements,

Compton, CA

08/18/2011 12/15/2011 11/30/2012
Appendix 3 - Tables 66

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-AO-0002 The Lafayette Parish Housing Authority 

Generally Followed Requirements When 

Obligating and Expending Its Public

Housing Capital Fund Stimulus Recovery 

Act Funds but Did Not Always Comply 

With Recovery Act Procurement and 

Reporting Requirements

08/26/2011 10/13/2011 10/13/2012

2011-BO-1009 Weymouth Housing Authority Did 

Not Always Administer Its Housing 

Choice Voucher Program and Public 

Housing Program in Accordance With 

HUD Regulations and Its Annual 

Contributions Contracts, Weymouth, 

MA

08/29/2011 12/22/2011 11/15/2012

2011-NY-1015 Weaknesses Existed in Essex County’s

Administration of Its Homelessness 

Prevention and Rapid Re-Housing 

Program, Essex County, NJ

09/20/2011 01/11/2012 10/01/2012

2011-NY-1016 The City of Buffalo Did Not Always 

Disburse Homelessness Prevention and 

Rapid Re-Housing Program Funds in 

Accordance With Regulations, Buffalo, 

NY

09/22/2011 01/25/2012 01/24/2013

2011-PH-1015 Camden County Generally Administered 

Its CDBG-R Act Funds According to 

Applicable Requirements, Camden, NJ

09/22/2011 01/12/2012 12/31/2012

2011-FW-1016 AmericaHomeKey, Inc., Did Not Follow 

HUD-FHA Loan Requirements in 

Underwriting 13 of 20 Manufactured 

Home Loans, Dallas, TX

09/23/2011 01/20/2012 Note 2
67 Appendix 3 - Tables 

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-SE-1008 The Idaho Housing and Finance 

Association Did Not Always 

Comply With HOME Investment

Partnerships Project and Cost 

Eligibility Regulations, Boise, ID

09/23/2011 01/18/2012 01/18/2013

2011-DE-1005 The State of Montana Generally Used 

Its CDBG-R Funds in Compliance With 

Requirements but Improperly Negotiated 

and Serviced Loans, Helena, MT

09/26/2011 01/12/2012 12/11/2012

2011-KC-0004 FHA Did Not Prevent Corporate 

Officers of Noncompliant Lenders From 

Returning to the FHA Program

09/26/2011 06/28/2012 Note 2

2011-AT-1018 The Municipality of San Juan Did Not 

Properly Manage Its HOME Investment

Partnerships Program, San Juan, PR

09/28/2011 01/12/2012 11/30/2012

2011-AT-1019 The Alabama Department of Economic

and Community Affairs Used 

Homelessness Prevention and Rapid 

Re-Housing Program Funds for Ineligible 

and Unsupported Purposes, Montgomery, 

AL

09/28/2011 01/10/2012 Note 2

2011-AO-1007 Jefferson Parish Housing Authority 

Did Not Always Comply With Public 

Housing Capital Fund Stimulus Recovery 

Act Obligation, Procurement, and 

Reporting Requirements, Marrero, LA

09/29/2011 01/26/2012 12/31/2012

2011-CH-1014 The City of Cleveland Lacked Adequate 

Controls Over Its HOME Investment

Partnerships Program-Funded Housing 

Trust Fund Program Home-Buyer 

Activities, Cleveland, OH

09/29/2011 01/26/2012 01/05/2013
Appendix 3 - Tables 68

Table B 

Significant audit reports for which final action had not been completed 

within 12 months after the date of the Inspector General’s report

Report number Report title Issue date Decision 

date

Final 

action

2011-CH-0003 The Office of Healthy Homes and Lead 

Hazard Control Needs To Improve Its 

Monitoring of American Recovery and 

Reinvestment Act Grant Recipients

09/30/2011 05/30/2012 Note 2

2011-CH-1015 The Springfield Metropolitan Housing 

Authority Did Not Administer Its Grant 

in Accordance With Recovery Act and 

HUD Requirements, Springfield, OH

09/30/2011 01/24/2012 01/24/2013

2011-CH-1017 Pioneer Civic Services, Inc., Did Not 

Properly Administer Its Supportive 

Housing Program and Housing 

Opportunities for Persons With AIDS 

Grants, Peoria, IL

09/30/2011 02/22/2012 12/31/2012

2011-FO-0006 American Recovery and Reinvestment 

Act of 2009 Grantees Met Initial 

Expenditure Requirements, but HUD

Should Return Recaptured Funds to the 

U.S. Treasury and Ensure That Grant

Closeout Procedures Comply With the 

Act

09/30/2011 02/15/2012 Note 2

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-FW-1001 TXL Mortgage Corporation Did 

Not Comply With HUD-FHA Loan 

Requirements in Underwriting 16 of 20 

Home Loans, Houston, TX

10/06/2011 02/24/2012 10/06/2012
69 Appendix 3 - Tables 

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-NY-1002 The City of New York Charged 

Questionable Expenditures to Its HPRP,

New York, NY

10/18/2011 02/16/2012 02/15/2013

2012-NY-1003 The City of Syracuse Did Not Always 

Administer Its CDBG Program in 

Accordance With HUD Requirements, 

Syracuse, NY

10/25/2011 02/22/2012 02/21/2013

2012-PH-0001 HUD Needed to Improve Its Use 

of Its Integrated Disbursement and 

Information System To Oversee Its 

CDBG Program

10/31/2011 02/28/2012 12/31/2012

2012-FO-0001 Audit of Ginnie Mae’s Financial 

Statement for Fiscal Years 2011 and 2010

11/07/2011 03/02/2012 Note 2

2012-PH-1002 The National Community Reinvestment 

Coalition Did Not Comply With 

Conflict-of-Interest Provisions in Its Fair 

Housing Initiative Program Agreement 

With HUD, Washington, DC

11/14/2011 03/06/2012 03/06/2013

2012-FO-0003 Additional Details To Supplement 

Our Report on HUD's Fiscal Years 

2011 and 2010 Financial Statements

11/15/2011 05/10/2012 04/01/2014

2012-LA-0001 HUD Did Not Adequately Support 

the Reasonableness of the Feefor-Service Amounts or Monitor 

the Amounts Charged

11/16/2011 03/27/2012 02/27/2015

2012-DE-1002 Trinidad Housing Authority Did Not 

Always Follow Requirements When 

Expending and Reporting Information

About Its Recovery Act Capital Funds, 

Trinidad, CO

11/29/2011 11/30/2011 01/31/2014
Appendix 3 - Tables 70

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-LA-1001 Housing Our Communities Did Not 

Administer Its NSP in Accordance 

With HUD Requirements, Mesa, AZ

12/08/2011 03/13/2012 03/11/2013

2012-SE-1002 The Vancouver Housing Authority 

Did Not Always Manage or Report on 

Recovery Act Funds in Accordance 

With Requirements, Vancouver, WA

12/21/2011 04/13/2012 03/26/2013

2012-LA-1003 The City of Modesto Did Not 

Always Comply With NSP2 

Requirements, Modesto, CA

12/22/2011 04/05/2012 03/06/2013

2012-BO-1001 The Housing Authority of the 

City of Hartford did not Properly 

Administer its $2.5 Million Recovery 

Act Grant Construction Management 

Contract., Hartford, CT

01/06/2012 05/11/2012 05/01/2013

2012-AT-1005 The Housing Authority of the City of 

Fort Lauderdale Did Not Fully Comply 

With Federal Requirements When 

Administering Its Public Housing Capital 

Fund Recovery Grants, Fort Lauderdale, 

FL

01/09/2012 05/02/2012 10/30/2012

2012-PH-1004 Luzerne County Generally Administered 

Its CDBG-R Funds According to 

Applicable Requirements, Wilkes-Barre, 

PA

01/13/2012 05/10/2012 01/13/2013

2012-AT-1007 The Shelby County, TN, Housing 

Authority Mismanaged Its HUDFunded Programs, Memphis, TN

01/26/2012 05/25/2012 06/01/2035
71 Appendix 3 - Tables 

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-CH-1001 The Gallia Metropolitan Housing 

Authority Did Not Always Administer Its 

Grant in Accordance with Recovery Act 

and HUD Requirements, Bidwell, OH

01/26/2012 04/26/2012 04/01/2013

2012-CH-1002 The Saginaw Housing Commission Did 

Not Administer Its Grant in Accordance 

With Recovery Act, HUD’s, and Its 

Requirements, Saginaw, MI

01/26/2012 06/04/2012 07/01/2013

2012-LA-1004 MetLife Bank’s Scottsdale, AZ, Branch 

Office Did Not Follow FHA-Insured 

Loan Underwriting and Quality Control 

Requirements

01/26/2012 05/18/2012 01/26/2013

2012-FO-0004 Information System Deficiencies Noted 

During FHA's Fiscal Year 2011 Financial 

Statement Audit

01/27/2012 05/21/2012 03/30/2013

2012-NY-1005 The City of Newark Had Weaknesses in 

the Administration of Its HPRP, Newark, 

NJ

01/27/2012 04/26/2012 01/25/2013

2012-NY-1006 MLD Mortgage, Inc., Did Not Always 

Comply With HUD-FHA Loan 

Origination and Quality Control 

Requirements, Florham Park, NJ

02/06/2012 05/18/2012 02/06/2013

2012-PH-0004 HUD Controls Did Not Always Ensure

That Home Equity Conversion Mortgage

Loan Borrowers Complied With 

Program Residency Requirements

02/09/2012 06/08/2012 02/01/2013
Appendix 3 - Tables 72

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-DP-0001 Audit Report on the Fiscal Year 2011 

Review of Information Systems Controls 

in Support of the Financial Statements 

Audit

02/14/2012 07/02/2012 09/30/2013

2012-NY-1007 The City of Syracuse Did Not Always 

Administer Its Economic Development

Initiative Program in Accordance With 

HUD Requirements, Syracuse, NY

02/21/2012 06/12/2012 11/30/2012

2012-AO-1001 Opelousas Housing Authority Did Not 

Always Comply With Recovery Act and 

Federal Obligation, Procurement, and 

Reporting Requirements, Opelousas, LA

02/23/2012 05/10/2012 05/10/2013

2012-CH-1003 The Springfield Housing 

Authority Needs To Improve Its 

ARRA Contract Administration 

Procedures, Springfield, IL

02/23/2012 06/04/2012 05/11/2013

2012-CH-1004 The State of Indiana’s Administrator 

Lacked Adequate Controls Over the 

State’s HOME Investment Partnerships

Program Regarding CHDOs’ Activities 

and Income, Indianapolis, IN

02/24/2012 06/22/2012 01/31/2013

2012-KC-1002 The East St. Louis Housing Authority

Did Not Properly Manage or Report on 

Recovery Act Capital Funds, East St.

Louis, IL

03/02/2012 06/29/2012 05/31/2013

2012-FW-1005 The State of Texas Did Not Follow 

Requirements for Its Infrastructure 

and Revitalization Contracts Funded 

With CDBG Disaster Recovery 

Program Funds, Austin, TX

03/07/2012 07/05/2012 03/07/2013
73 Appendix 3 - Tables 

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-FW-1802 Bank of America Corporation, 

Foreclosure and Claims Process 

Review, Charlotte, NC

03/12/2012 07/09/2012 06/28/2013

2012-LA-1005 The City of Los Angeles Did Not Expend

Brownfields Economic Development

Initiative and Section 108 Funds for 

the Goodyear Industrial Tract Project in 

Accordance With HUD Requirements, 

Los Angeles, CA

03/13/2012 09/19/2012 03/13/2014

2012-BO-1002 The Housing Authority of the City of 

Stamford Did Not Properly Administer 

and Oversee the Operations of Its Federal 

Programs, Stamford, CT

03/14/2012 08/27/2012 12/31/2013

2012-PH-1006 Gloucester Township Did Not 

Always Administer Its CDBG-R 

Act Funds According to Applicable 

Requirements, Blackwood, NJ

03/14/2012 05/30/2012 05/30/2013

2012-PH-1008 Mountain CAP of WV, Inc., Did Not 

Administer Its HPRP in Accordance 

With Applicable Recovery Act and HUD 

Requirements, Buckhannon, WV

03/15/2012 07/12/2012 10/31/2012

2012-BO-1003 The Medford Housing Authority Needs 

to Improve Rent Reasonableness 

Determinations, Procurement, and 

Enforcement of Housing Quality

Standards, Medford, MA

03/21/2012 08/06/2012 12/31/2012

2012-CH-1006 Cuyahoga Metropolitan Housing 

Authority Did Not Operate Its 

Section 8 Housing Choice Voucher 

Program According to HUD’s 

Requirements, Cleveland, OH

03/29/2012 07/18/2012 03/01/2013
Appendix 3 - Tables 74

Table B 

Significant audit reports issued within the past 12 months that 

were described in previous semiannual reports for which final 

action had not been completed as of September 30, 2012

Report number Report title Issue date Decision 

date

Final 

action

2012-CH-1007 The State of Michigan Lacked Adequate 

Controls Over Its Use of NSP Funds 

Under the HERA for a Project, Lansing,

MI

03/30/2012 07/26/2012 12/28/2012

Audits Excluded:

85 audits under repayment plans

38 audits under debt claims collection processing, formal judicial review, investigation, or legislative 

solution

Notes:

1 Management did not meet the target date. Target date is over 1 year old.

2 Management did not meet the target date. Target date is under 1 year old.

3 No management decision
75 Appendix 3 - Tables 

Table C 

Inspector General-issued reports with 

questioned and unsupported costs as of September 30, 2012

*(thousands)

Audit reports Number of 

audit reports

Questioned 

costs

Unsupported 

costs

A1 For which no management decision 

had been made by the commencement 

of the reporting period

39 $81,516 $68,207 

A2 For which litigation, legislation, or 

investigation was pending at the 

commencement of the reporting period

3 $6,619 $3,305 

A3 For which additional costs were added 

to reports in beginning inventory

- $339 $160 

A4 For which costs were added to noncost reports 1 $20 $20 

B1 Which were issued during 

the reporting period

54 $1,201,555 $64,440 

B2 Which were reopened during 

the reporting period

0 0 0

Subtotals (A + B) 97 $1,290,049 $136,132 

C For which a management decision was 

made during the reporting period

531 $85,240 $66,990 

(1) Dollar value of disallowed costs: 

Due HUD 

Due program participants

282 

35

$16,098

$49,241

$10,916 

$37,672

(2) Dollar value of costs not disallowed 93 $19,901 $18,402 

D For which a management decision had been 

made not to determine costs until completion 

of litigation, legislation, or investigation

5 $8,960 $5,299 

E For which no management decision had made 

by the end of the reporting period

39

<102>4 

$1,195,849 

 <$1,184,214>4 

$63,843 

<$52,209>4 

1

 22 audit reports also contain recommendations that funds be put to better use. 

2

 10 audit reports also contain recommendations with funds due program participants. 

3

 9 audit reports also contain recommendations with funds agreed to by management. 

4

The figures in brackets represent data at the recommendation level as compared to the report level. See Explanations of Tables C and

D.
Appendix 3 - Tables 76

Table D 

Inspector General-issued reports with recommendations that 

funds be put to better use as of September 30, 2012 

*(thousands)

Audit reports Number of 

audit reports Dollar value

A1 For which no management decision had been made 

by the commencement of the reporting period

20 $2,523,872 

A2 For which litigation, legislation, or investigation was pending 

at the commencement of the reporting period

2 $15,521 

A3 For which additional costs were added to 

reports in beginning inventory

- $2,332 

A4 For which costs were added to noncost reports 0 $0 

B1 Which were issued during the reporting period 32 $824,799 

B2 Which were reopened during the reporting period 0 $0 

Subtotals (A + B) 54 $3,366,524 

C For which a management decision was 

made during the reporting period

291 $2,465,184 

(1) Dollar value of recommendations that 

were agreed to by management: 

Due HUD 

Due program participants

12

16

$2,272,763

$88,155

(2) Dollar value of recommendations that 

were not agreed to by management

42 $104,266 

D For which a management decision had been 

made not to determine costs until completion 

of litigation, legislation, or investigation

4 $17,375 

E For which no management decision had made 

by the end of the reporting period

21

<29>3 

$883,965 

 <$821,764>3 

1 22 audit reports also contain recommendations with questioned costs. 

2 3 audit reports also contain recommendations with funds agreed to by management. 

3 The figures in brackets represent data at the recommendation level as compared to the report level. See Explanations of

Tables C and D. 
77 Appendix 3 - Tables 

Explanations of Tables C and D

The Inspector General Act Amendments of 1988 require inspectors general and agency heads 

to report cost data on management decisions and final actions on audit reports. The current 

method of reporting at the “report” level rather than at the individual audit “recommendation” 

level results in misleading reporting of cost data. Under the Act, an audit “report” does not have 

a management decision or final action until all questioned cost items or other recommendations 

have a management decision or final action. Under these circumstances, the use of the “report” 

based rather than the “recommendation” based method of reporting distorts the actual agency 

efforts to resolve and complete action on audit recommendations. For example, certain cost 

items or recommendations could have a management decision and repayment (final action) in 

a short period of time. Other cost items or nonmonetary recommendation issues in the same 

audit report may be more complex, requiring a longer period of time for management’s decision 

or final action. Although management may have taken timely action on all but one of many 

recommendations in an audit report, the current “all or nothing” reporting format does not 

recognize their efforts.

The closing inventory for items with no management decision in tables C and D (line E) reflects

figures at the report level as well as the recommendation level.
Appendix 3 - Tables 78
79 Appendix 4 - 5-Year Recap: HUD OIG’s Impact on the FHA Insurance Program FY 2008-2012

Financial health of the insurance fund issue

HUD oversight and enforcement issues

By the numbers 

production:

1,065

external FHA 

audits

32

internal FHA 

audits

542

mgt. recommendations

1,203

fraud 

convictions

Management 

results:

1,071

administrative 

actions

$890 million

funds put to 

better use

$1.5 billion

recoveries

$353 million

questioned 

audit costs

Robosigning audits 

 - $900 million settlement for FHA 

and $24.1 billion for other agencies 

National City Mortgage 

- $4.6 million settlement

DHI Mortgage Company 

- $38 million indemnification

RBC Mortgage Company 

- $10.9 million civil settlement 

Somerset Investor Corp. 

- $2.8 million indemnification

Worldwide Financial Services 

- $3.4 million false claims judgment

DHI Mortgage Company 

- $2.5 million indemnification 

Marathon Mortgage 

- $21.4 million restitution 

Washington Mutual Home 

Loans - $364,000 settlement

Mortgage One Corporation 

- $29.7 million restitution

Controls over FHA appraiser 

rosters inadequate

Partial claim process 

HUD’s Quality Assurance Division HUD’s REO contractor 

Short sales review advised HUD of 

weakness in program guidelines 

Reverse mortgage program 

FHA appraiser review process HUD’s Quality Control Division 

FHA loans in flood plains Review of M&M contractors 

HUD needs to use system edits to 

identify HECM applicants who are 

not occupying the unit as required.

Senate Committee on Appropriations

House of Representatives 

Committee on Financial Services 

*HECM-home equity conversion mortgage *REO - real estate owned *M&M - management and marketing

Settlement Audit Inspection and 

Evaluation Civil Fraud Testimony Investigation

Appendix 4

5-Year Recap: HUD OIG’s Impact on the FHA Insurance Program FY 2008-2012
Appendix 4 - 5-Year Recap: HUD OIG’s Impact on the FHA Insurance Program FY 2008-2012 80

Risk management issues

Mortgage fraud issues

FHA internal controls 

need to be risk based 

FHA lender renewal process should 

issue violation notices promptly 

FHA’s lender approval process 

should restrict principals 

who commit fraud

Operation Watchdog $945,000 

settlement; recommended 

use of statistical sampling 

to do claims review 

Mortgagee Review Board 

inadequacy of enforcement actions 

Preclosing and postclosing loan 

reviews of new FHA lenders; 

needed improved controls

HUD’s automated underwriting 

process needs risk policies 

Senate Committe on Banking and 

Urban Affairs regarding risked-based 

premiums and zero downpayments

Six defendants in a HECM 

short sales fraud

-48 months incarceration, 

5 years supervised release, 

$9.2 million restitution

Owner of realty group falsified 

FHA application data

-63 months incarceration, 

5 years supervised release 

Financial group owner runs 

distressed homeowner scheme

-27 months incarceration, 5 years 

supervised release, $545,000 restitution 

RBC mortgage processors 

- $1.1 million restitution; false 

documents for unqualified buyers 

Countrywide Homes 

- $740,000 indemnification 

First City Abstract 

- $4.6 million restitution 

property flipping

V.P. Encore Mortgage et al 

- 12.5 years incarceration, 

$5.1 million restitution

Beazer Homes 

- $5 million restitution, $50 

million fund for victims

Anchor Mortgage Corporation 

 - $2.9 million false claims judgment 

Great Stone Mortgage - 8+ years 

incarceration, $77.9 million restitution

By the numbers 

production:

106

external FHA 

audits

32

internal FHA 

audits

542

mgt. recommendations

1,203

fraud 

convictions

Management 

results:

1,071

administrative 

actions

$890 million

funds put to 

better use

$1.5 billion

recoveries

$353 million

questioned 

audit costs

Settlement Audit Inspection and 

Evaluation Civil Fraud Testimony Investigation
81 OIG - Telephone Directory 

Office of Audit

Headquarters Office of Audit, Washington, DC 202-708-0364

Region 1/2 Boston, MA 

 Hartford, CT 860-240-4800

Manchester, NH 603-666-7988

New York, NY 212-264-8062

Buffalo, NY 716-551-5755

Newark, NJ 973-776-7355

Region 3 Philadelphia, PA 215-430-6758

 Baltimore, MD 410-209-6533

Pittsburgh, PA 412-644-6598

Richmond, VA 804-822-4890

Washington, DC 202-314-5451

Region 4 Atlanta, GA 404-331-5001

 Birmingham, AL 205-745-4314

Columbia, SC 803-451-4318

Greensboro, NC 336-547-4000

Hattiesburg, MS 601-434-5848

Jackson, MS 601-965-4700

Memphis, TN 901-969-0344

Miami, FL 305-536-3087

Nashville, TN 615-736-2332

San Juan, PR 787-766-5868

Tampa, FL 813-228-2026

Region 5 Chicago, IL 312-353-4196

 Cleveland, OH 216-357-7800

Columbus, OH 614-469-6677

Detroit, MI 313-226-6280

Grand Rapids, MI 616-309-2845

Indianapolis, IN 317-226-5427

Minneapolis-St. Paul, MN 612-370-3130

Region 6 Fort Worth, TX 817-978-5440

 Baton Rouge, LA 225-448-3941

Houston, TX 713-718-3221

Little Rock, AR 501-324-5931

Albuquerque, NM 505-346-7270

New Orleans, LA 504-671-3700

Oklahoma City, OK 405-609-8603

San Antonio, TX 210-475-6819

OIG

Telephone Directory 
OIG - Telephone Directory 82

Region 7 Kansas City, KS 913-551-5866

 St. Louis, MO 314-539-6559

 Denver, CO 303-672-5350

Billings, MT 406-247-4080

Salt Lake City, UT 801-524-6090

Seattle, WA 206-220-5380

Region 9 Los Angeles, CA 213-894-0219

 Las Vegas, NV 702-413-0531

Phoenix, AZ 602-379-7252

Sacramento, CA 916-930-5691

San Francisco, CA 415-489-6683

Office of Investigation

Headquarters Office of Investigation, Washington, DC 202-708-0390

Region 1/2 Boston, MA 617-994-8450

 Hartford, CT 860-240-4800

Manchester, NH 603-666-7988

New York, NY 212-264-8062

Buffalo, NY 716-551-5755

Newark, NJ 973-776-7355

Region 3 Philadelphia, PA 215-430-6758

 Baltimore, MD 410-209-6533

Pittsburgh, PA 412-644-6598

Richmond, VA 804-822-4890

Washington, DC 202-314-5451

Region 4 Atlanta, GA 404-331-5001

 Birmingham, AL 205-745-4314

Columbia, SC 803-451-4318

Greensboro, NC 336-547-4000

Hattiesburg, MS 601-434-5848

Jackson, MS 601-965-4700

Memphis, TN 901-969-0344

Miami, FL 305-536-3087

Nashville, TN 615-736-2332

San Juan, PR 787-766-5868

Tampa, FL 813-228-2026

Region 5 Chicago, IL 312-353-4196

 Cleveland, OH 216-357-7800

Columbus, OH 614-469-6677

Detroit, MI 313-226-6280
83 OIG - Telephone Directory 

 Grand Rapids, MI 616-309-2845

Indianapolis, IN 317-226-5427

Minneapolis-St. Paul, MN 612-370-3130

Region 6 Fort Worth, TX 817-978-5440

 Baton Rouge, LA 225-448-3941

Houston, TX 713-718-3221

Little Rock, AR 501-324-5931

New Orleans, LA 504-671-3700

Oklahoma City, OK 405-609-8603

San Antonio, TX 210-475-6819

Region 7 Kansas City, KS 913-551-5866

 St. Louis, MO 314-539-6559

Region 8/10 Denver, CO 303-672-5350

 Billings, MT 406-247-4080

Salt Lake City, UT 801-524-6090

Seattle, WA 206-220-5380

Region 9 Los Angeles, CA 213-894-0219

 Las Vegas, NV 702-413-0531

Phoenix, AZ 602-379-7252

Sacramento, CA 916-930-5691

San Francisco, CA 415-489-6683
OIG - Telephone Directory 84

Report fraud, waste, and mismanagement in HUD

programs and operations by

Calling the OIG hotline: 1-800-347-3735

Monday through Friday, 10:00 a.m. – 6:00 p.m., 

Eastern Standard Time

Faxing the OIG hotline: 202-708-4829

Sending written information to

U.S. Department of Housing and Urban Development

Inspector General Hotline (GFI)

451 7th Street, SW

Washington, DC 20410

Internet: http://www.hudoig.gov/hotline/index.php

All information is confidential,

and you may remain anonymous.
85 OIG - Telephone Directory U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

Semiannual Report to Congress

www.hud.gov/offices/oig

No. 68

Historic Settlement

April 1, 2012, Through September 30, 2012